Hollyvale Rental Holdings, LLC v. Baum et al

Filing 62

ORDER denying Plaintiff / Counterdefendant's 39 Motion to Remand to State Court. Signed by Judge Richard F. Boulware, II on 3/31/2018. (Copies have been distributed pursuant to the NEF - BEL)

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UNITED STATES DISTRICT COURT

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DISTRICT OF NEVADA

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***

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HOLLYVALE RENTAL HOLDINGS, LLC,

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Plaintiff,

Case No. 2:16-cv-02888-RFB-PAL
ORDER

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v.

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Plaintiff’s Motion to Remand (ECF No. 39)

JARED K. BAUM, et al.,

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Defendants.
_____________________________________

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FEDERAL NATIONAL MORTGAGE
ASSOCIATION,

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Counterclaimant,
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v.

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HOLLYVALE RENTAL HOLDINGS, LLC,

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Counterdefendant.

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I.

INTRODUCTION
Before this Court comes Plaintiff / Counterdefendant Hollyvale Rental Holdings, LLC

(“Hollyvale”)’s Motion to Remand (ECF No. 39). For the reasons stated below, the Motion to
Remand is DENIED.

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II.

BACKGROUND
On November 22, 2016, Hollyvale filed a Complaint in the Eighth Judicial District Court
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of Clark County, Nevada. (ECF No 1-2). Hollyvale filed a First Amended Complaint in the state

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court on December 9, 2016. (ECF No. 1-5). Hollyvale brought the following causes of action: (1)

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quiet title, against all Defendants; (2) declaratory relief, against all Defendants; and (3) injunctive

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relief, against Federal National Mortgage Association and Quality Loan Service Corporation.

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Defendant Federal National Mortgage Association (“Fannie Mae”) filed a Petition for Removal on

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December 14, 2016. (ECF No. 1). Fannie Mae asserted in the Petition: “The ground for this

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removal is federal question jurisdiction over claims brought against Fannie Mae. Fannie Mae owns

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the loan secured by the first Deed of Trust recorded against the subject property and is the

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beneficiary of record of the Deed of Trust. Pursuant to 28 U.S.C. 1331, ‘[t]he district courts shall

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have original jurisdiction of all civil actions arising under the Constitution, laws, or treaties of the

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United States.’ Fannie Mae’s federal corporate charter confers federal question jurisdiction over

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claims brought against Fannie Mae. Lightfoot v. Cendant Mortg. Corp., 769 F.3d 681 (9th Cir.

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2014).”

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On January 3, 2017, Fannie Mae filed an Answer and Counterclaim. (ECF No. 6). In the

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Counterclaim, Fannie Mae asserted the following causes of action: (1) declaratory relief under 12

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U.S.C. § 4617(j)(3); (2) quiet title under 12 U.S.C. § 4617(j)(3); (3) declaratory relief under the

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Fifth and Fourteenth Amendments; (4) quiet title under the Fifth and Fourteenth Amendments; (5)

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permanent and preliminary injunction; and (6) unjust enrichment. Hollyvale filed an Answer to

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the Counterclaim on January 12, 2017. (ECF No. 7).

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On August 21, 2017, Hollyvale filed the instant Motion to Remand. (ECF No. 39). Fannie

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Mae filed its Response on September 5, 2017. (ECF No. 43). Hollyvale filed its Reply on

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September 8, 2017. (ECF No. 44). On August 23, 2017, the Court entered a minute order staying

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the case pending a decision on a question certified to the Nevada Supreme Court, and setting a

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hearing on the Motion to Remand. (ECF No. 41). Also on August 23, Hollyvale filed its Second

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Amended Complaint, adding Red Rock Financial Services and Villas at Terra Linda Homeowners

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Association as Defendants. (ECF No. 42). On October 6, 2017, the Court held a hearing on the

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matter and took the motion under submission. (ECF No. 55).

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III.

LEGAL STANDARD
A. Removal Jurisdiction

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28 U.S.C. § 1441(a) grants federal district courts jurisdiction over state court actions that

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originally could have been brought in federal court. “Removal and subject matter jurisdiction

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statutes are strictly construed, and a defendant seeking removal has the burden to establish that

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removal is proper and any doubt is resolved against removability.” Hawaii ex rel. Louie v. HSBC

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Bank Nevada, N.A., 761 F.3d 1027, 1034 (9th Cir. 2014) (citation and quotation marks omitted).

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B. Federal Question Jurisdiction

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A district court has “original jurisdiction of all civil actions arising under the Constitution,

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laws, or treaties of the United States.” 28 U.S.C. § 1331. An action “arises under” federal law

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when “federal law creates the cause of action.” Merrell Dow Pharm. Inc. v. Thompson, 478 U.S.

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804, 808 (1986). But even where a claim finds its origins in state rather than federal law, the

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Supreme Court has identified a “special and small category” of cases in which federal question

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jurisdiction still exists. Empire Healthchoice Assurance, Inc., v. McVeigh, 547 U.S. 677, 699

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(2006). Federal jurisdiction over a state law claim may lie if a federal issue is: (1) necessarily

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raised, (2) actually disputed, (3) substantial, and (4) capable of resolution in federal court without

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disrupting the federal-state balance approved by Congress. See Grable & Sons Metal Prods., Inc.

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v. Darue Eng’g & Mfg., 545 U.S. 308, 314 (2005) (explaining that the “the question is, does a

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state-law claim necessarily raise a stated federal issue, actually disputed and substantial, which a

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federal forum may entertain without disturbing any congressionally approved balance of federal

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and state judicial responsibilities.”). Grable does not provide a per se “test” for federal question

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jurisdiction. However, the presence of all four Grable factors suggests that federal jurisdiction is

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proper because there is a “serious federal interest in claiming the advantages thought to be inherent

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in a federal forum,” which can be vindicated without disrupting Congress’s intended division of

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labor between state and federal courts. Id. at 313 (citations omitted).

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IV.

DISCUSSION
a. Initial Grounds for Removal

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In its Petition for Removal, Fannie Mae asserted as the grounds for removal the Ninth

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Circuit’s decision in Lightfoot v. Cendant Mortg. Corp., 769 F.3d 681 (2014). In that case, the

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Ninth Circuit held that the “sue-and-be-sued” clause of 12 U.S.C. § 1723a(a) (“the Fannie Mae

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charter”) grants federal courts jurisdiction over cases in which Fannie Mae is a party. Lightfoot,

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769 F.3d at 683. The statute specifically allows Fannie Mae to “in its corporate name, to sue and

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to be sued, and to complain and to defend, in any court of competent jurisdiction, State or Federal

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. . . .” 12 U.S.C. § 1723a(a).

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In the Motion to Remand, Hollyvale argues that this Court no longer has subject matter

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jurisdiction, as the Supreme Court reversed the Ninth Circuit’s 2014 decision. Lightfoot v. Cendant

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Mortg. Corp., 137 S. Ct. 553 (2017). The Supreme Court focused on the “court of competent

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jurisdiction” phrase in the Fannie Mae charter, finding that the phrase requires a court to have

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subject-matter jurisdiction over the claims before it separately from the invocation of the charter.

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137 S. Ct. at 560-61. The Court held that “Fannie Mae’s sue-and-be-sued clause is most naturally

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read not to grant federal courts subject-matter jurisdiction over all cases involving Fannie Mae. In

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authorizing Fannie Mae to sue and be sued ‘in any court of competent jurisdiction, State or

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Federal,’ [the clause] permits suit in any state or federal court already endowed with subject-matter

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jurisdiction over the suit.” Id. at 561. Hollyvale additionally argues that on the face of the

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Complaint it did not seek to avoid declaratory relief under a federal question, but rather brought a

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claim for quiet title that turns exclusively on a Nevada statute. In opposition, Fannie Mae contends

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that Plaintiff did assert a claim for declaratory judgment, which avoided an affirmative action by

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the declaratory judgment defendant. Fannie Mae argues that it could have asserted claims for

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injunctive relief, declaratory relief, or quiet title, and that it did raise such counterclaims. These

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counterclaims, according to Fannie Mae, necessarily present claims arising under federal law –

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namely, federal due process and the Federal Foreclosure Bar, 12 U.S.C. § 4617(j)(3).

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Thus, the Court must resolve two questions: first, whether Fannie Mae can now rely upon

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an alternative ground for subject-matter jurisdiction, and second, whether such ground did exist at

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the time of removal. The Court finds that both questions are answered in the affirmative and that

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subject-matter jurisdiction existed at the time of removal. The Court explains its reasoning below.

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b. Coercive Action Doctrine Applies

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Hollyvale argues that there is no substantial federal question found on the face of the

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complaint or in its claims, and that Fannie Mae improperly attempts to rely upon a federal defense

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– the Federal Foreclosure Bar – to now revive federal question jurisdiction. Hollyvale asks the

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Court to find that each of its causes of action arise exclusively under state law.

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Fannie Mae argues, and this Court agrees, however, that the “coercive action” doctrine

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provides a basis for jurisdiction in this case. As the Supreme Court recently explained in

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Medtronic, the coercive action doctrine provides a defendant in a declaratory judgment action a

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limited avenue to bring suit in federal court, even if the initial claim for declaratory relief is not

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based upon federal law. Medtronic, Inc. v. Mirowski Family Ventures, 134 S. Ct. 843, 848 (2014)

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(citations omitted) (“We also agree that federal courts, when determining declaratory judgment

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jurisdiction, often look to the ‘character of the threatened action.’ That is to say, they ask whether

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‘a coercive action’ brought by ‘the declaratory judgment defendant’ . . . ‘would necessarily present

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a federal question.’”); see also Janakes v. United States Postal Serv., 768 F.2d 1091, 1093 (9th Cir.

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1985) (citation omitted) (“If, however, the declaratory judgment defendant could have brought a

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coercive action in federal court to enforce its rights, then we have jurisdiction notwithstanding the

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declaratory judgment plaintiff’s assertion of a federal defense.”).

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The Ninth Circuit in Janakes specified that the coercive action must “arise under” federal

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law, and cannot be based solely upon “diversity of citizenship or another, non[-]substantive

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jurisdictional statute.” Id. (citation omitted). Such suit need not have actually been brought by the

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declaratory judgment defendant; federal question jurisdiction attaches even if the coercive action

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is hypothetical. Id. at 1094. Moreover, jurisdiction will exist even if the claim serving as the basis

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for jurisdiction is later abandoned or dismissed. See id. at 1095 (citations omitted) (finding that,

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when defendant abandoned its statutory claims and pursued only federal common-law claims,

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“waiver of [defendant’s] statutory claim, however, [did] not affect [the court’s] jurisdictional

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analysis because the parties cannot by stipulation or waiver grant or deny federal subject matter

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jurisdiction.”)

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Hollyvale argues that the coercive action doctrine does not apply here because Hollyvale’s

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claims to quiet title are based solely on state law, and Fannie Mae merely asserts a federal defense.

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Fannie Mae argues, however, that the “coercive action” doctrine is applicable because Fannie Mae

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could have, and now has, brought a separate federal declaratory judgment action under 28 U.S.C.

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§2201 seeking quiet title or similar equitable claim based on the Federal Foreclosure Bar to protect

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its property interests. The Court finds that, given the alleged facts in this case, a declaratory

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judgment action seeking quiet title based upon an assertion of the Federal Foreclosure Bar is a

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coercive action creating federal jurisdiction for this case. 1 The Court finds that the assertion of the

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Federal Foreclosure Bar in this case is not simply an affirmative defense for which there would be

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no federal jurisdiction. That is because the determination of whether or not the Federal Foreclosure

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Bar applies is essential for deciding the quiet title or equitable claims regarding property interests

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brought by Hollyvale and by Fannie Mae. The issue of the Federal Foreclosure Bar pre-empting

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the application of state law is one suitable for a federal court to decide, and moreover has recently

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been decided by the Ninth Circuit, as discussed below. Here, the Federal Foreclosure Bar requires

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the consent of Fannie Mae’s conservator prior to the levy, attachment, garnishment, foreclosure,

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or sale of the conservator’s property. 12 U.S.C. § 4617(j)(3). Implicit in this statute is Fannie Mae’s

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right to challenge an unauthorized foreclosure before a federal court.

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This finding is compelled by the Supreme Court’s decision in Grable & Sons Metal

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Products v. Darue Engineering and Manufacturing. 545 U.S. 308 (2005). As the Supreme Court

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explained and held in Grable, state law claims for quiet title have long provided bases for federal

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court jurisdiction. 545 U.S. at 315 (finding that “quiet title actions hav[e] been the subject of some

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of the earliest exercises of federal-question jurisdiction over state-law claims” and discussing three

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cases in which quiet title claims arose under federal law). Several pre-Grable cases suggest that,

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where a plaintiff’s allegations in an action to quiet title necessarily implicate federal law, federal

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The Court declines to find that Fannie Mae could prevent remand by asserting a coercive
action based upon the Fifth or Fourteenth Amendments.
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jurisdiction is proper. See Wilson Cypress Co. v. Del Pozo Y Marcos, 236 U.S. 635, 643-644

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(1915) (denying motion to dismiss in a quiet title case where the complaint involved a grant of

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land made pursuant to treaty and finding that “there [was] scarcely a contention of complainants

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which [did] not primarily or ultimately depend upon the laws of the United States.”); see also

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Northern P. R. Co. v. Soderberg, 188 U.S. 526, 528 (1903) (finding that federal jurisdiction was

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proper both on grounds of diversity and because “it appear[ed] that [plaintiff’s] title rest[ed] upon

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a proper interpretation of the land grant act of 1864 . . . [which provided] another ground wholly

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independent of citizenship[.]”).

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Whether the Federal Foreclosure Bar would have prevented, or as a matter of law did

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prevent, Hollyvale’s purchase of the subject property in the nonjudicial foreclosure sale is an

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essential consideration for its claim, regardless of whether the claim itself explicitly refers to

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federal law. The Court finds the precedent in Grable to be both persuasive and binding here as to

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the determination of federal question jurisdiction, and proceeds to analyze each factor of the test.

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i. Quiet Title Claims Necessarily Raised a Federal Issue

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The Court finds, as explained above, that there is a coercive action based upon substantive

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federal law that Fannie Mae could have raised – that the sale of the subject property to Hollyvale

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violated 12 U.S.C. 4617(j)(3) and that Fannie Mae thus retained its property rights. The first

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element of Grable is therefore satisfied. The Court further finds pursuant to Janakes that it was

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not necessary for Fannie Mae to raise this argument at the time of removal for the Court to

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determine its jurisdiction. 768 F.2d at 1095.

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ii. An Actual Dispute Existed at the Time of Removal

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In applying Grable, the Court must also determine whether the claims in this case raise a

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federal issue that is actually in dispute. A finding of federal question jurisdiction in a complaint

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asserting exclusively state law claims requires a “contested federal issue[.]” Grable, 545 U.S. at

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313 (2005) (citations omitted). An unresolved question is a crucial ingredient in such case,

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particularly when a land interest is involved. See Shulthis v. McDougal, 225 U.S. 561, 569 (1912)

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(“A suit to enforce a right which takes its origin in the laws of the United States is not necessarily,

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or for that reason alone, one arising under those laws, for a suit does not so arise unless it really

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and substantially involves a dispute or controversy respecting the validity, construction or effect

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of such a law, upon the determination of which the result depends. This is especially so of a suit

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involving rights to land acquired under a law of the United States.”)

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The instant case was filed in November 2016 and removed to this Court in December 2016.

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(ECF No. 1). At that time, there had not been a ruling on whether the Federal Foreclosure Bar

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preempted the Nevada “superpriority lien” statute; therefore, an actual dispute existed at the time

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of removal. On August 25, 2017, the Ninth Circuit decided Berezovsky v. Moniz, 869 F.3d 923.

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In a case with very similar facts, the Court affirmed the district court’s finding that the Federal

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Foreclosure Bar preempts a Nevada statute which allows homeowners associations to foreclose on

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indebted properties and effect a “superpriority lien” over senior interests. Id at 926. The Court

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issued its decision to address an ongoing controversy, noting that a “clash of state and federal law

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has spawned considerable litigation in Nevada” on this topic. Id. at 925. This Court finds, however,

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that at the time this case was removed in 2016, there existed a question as to whether the Federal

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Foreclosure Bar preempted Nevada law as the Ninth Circuit’s decision in Berezovsky had not been

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issued. As the dispute also existed at the time the Supreme Court reversed Lightfoot, the Court

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finds that the second element of Grable is satisfied.

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iii. Resolution of the Issue is Substantially Important to the Federal System

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The Court also finds that Hollyvale’s Amended Complaint necessarily raises a federal issue

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that is also substantial. “The substantiality inquiry under Grable looks . . . to the importance of the

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issue to the federal system as a whole.” Gunn v. Minton, 133 S. Ct. 1059, 1066 (2013). “[P]ure

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issue[s] of law” are more likely to be substantial because a federal court may settle the issue “once

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and for all.” Empire Healthchoice Assurance, Inc., v. McVeigh, 547 U.S. 677, 700 (2006) (citation

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and quotation marks omitted). Conversely, “fact-bound and situation specific” inquiries are

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generally not considered to be substantial. Id. at 700-01.

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The Ninth Circuit’s decision in Berezovsky demonstrates the significance of the issue,

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particularly as the dispute generated much litigation in Nevada. The Court rested its decision on

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principles of federalism. Relying upon cases interpreting the Supremacy Clause, the Court

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determined that the Federal Foreclosure Bar operated as an absolute prohibition on foreclosures of

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property owned by FHFA and Fannie Mae, despite the existence of Nevada’s “superpriority lien”

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statutory scheme. 869 F.3d at 931. The federal interest in preventing foreclosure on federal

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property pursuant to a state law is significant and clear. Moreover, the resolution of the dispute by

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the court in Berezovsky did not require fact-specific inquires, and conclusively settled the issue.

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Thus, the Court finds that the third Grable element is met.

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iv. Federal Court Resolution Has Not Disrupted the Federal – State
Balance

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The resolution of the dispute regarding the Federal Foreclosure Bar’s effect on Nevada’s

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“superpriority lien” statutory framework would not disrupt the federal versus state law balance.

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As, the Ninth Circuit, in Berezovsky, stated explicitly: “Nevada’s [“superpriority lien”] law is an

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obstacle to Congress’s clear and manifest goal of protecting [the conservator’s] assets in the face

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of multiple potential threats, including threats arising from state foreclosure law.” Id. Resolution

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from the federal court has thus provided harmony rather than discord and has established a clear

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answer for the many litigants bringing challenges on similar sets of facts. The Court finds that, at

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the time of removal in this case, the resolution of the dispute as to the Federal Foreclosure Bar

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would not have upset the federal – state balance. Indeed, the resolution of the dispute would and

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did, in Berezovsky, bring closure to an existing tension between federal and state law. The fourth

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Grable factor is thus also satisfied.

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As all four elements of the Grable framework are satisfied, the Court properly retains
jurisdiction over this case.
c. Fannie Mae’s Remaining Arguments

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As the Court finds that the coercive action doctrine applies and the Grable framework is

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established, the Court only briefly addresses Fannie Mae’s remaining arguments. Pursuant to

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Janakes, a coercive action cannot be asserted on non-substantive grounds such as diversity. The

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Court therefore declines to address Fannie Mae’s contention of fraudulent joinder. The Court also

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notes that it does not find Fannie Mae’s arguments persuasive on the issue of consent to

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jurisdiction, as the Court retains the obligation to sua sponte ensure it has jurisdiction at all times

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during the pendency of litigation. See McNutt v. Gen. Motors Acceptance Corp. of Ind., 298 U.S.

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178, 189 (1936) (“The authority . . . vest[ed] in the court to enforce the limitations of its jurisdiction

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precludes the idea that jurisdiction may be maintained by mere averment or that the party asserting

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jurisdiction may be relieved of his burden by any formal procedure. If his allegations of

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jurisdictional facts are challenged by his adversary in any appropriate manner, he must support

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them by competent proof. And where they are not so challenged the court may still insist that the

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jurisdictional facts be established or the case be dismissed . . . .”)

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V.

CONCLUSION
For the reasons stated above,
IT IS ORDERED that Plaintiff / Counterdefendant’s Motion to Remand (ECF No. 39) is

DENIED.

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DATED this 31st day of March, 2018.

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____________________________
RICHARD F. BOULWARE, II
UNITED STATES DISTRICT JUDGE

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