U.S. BANK NATIONAL ASSOCIATION v. VERITY et al

Filing 29

OPINION. Signed by Judge William J. Martini on 4/20/15. (gh, )

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY
U.S. BANK, N.A., as Trustee for RASC
SERIES 2005 EMX4 TRUST,

Civ. No. 14-2513 (WJM)

Plaintiff,
OPINION
v.
PAUL VERITY, et al.
Defendants.
PAUL VERITY,
Plaintiff,
v.
U.S. BANK, N.A. as Trustee for RASC
SERIES 2005 EMX4 TRUST, WELLS
FARGO BANK, N.A. dba AMERICA’S
SERVICING COMPANY,
Counter-Defendants.

WILLIAM J. MARTINI, U.S.D.J.:
Plaintiff U.S. Bank, N.A. as Trustee for RASC Series 2005 EMX4 Trust (“U.S.
Bank”) seeks to foreclose on a home owned by Defendants Paul and Jennifer Verity
(collectively, “the Veritys”). U.S. Bank has also named the State of New Jersey and
Midland Funding, LLC as defendants because both of those parties may possess liens or
other claims on the property by virtue of having previously obtained state court
judgments against the Veritys. U.S. Bank filed this action in state court, but the Veritys
filed a notice of removal asserting the existence of diversity jurisdiction. In response,
U.S. Bank filed a motion to remand.
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This matter comes before the Court on a Report and Recommendation (“the
R&R”) issued by U.S. Magistrate Judge Mark Falk concerning U.S. Bank’s remand
motion. The R&R recommends that the undersigned remand the matter for lack of
subject-matter jurisdiction because there is not complete diversity of citizenship between
the parties. Specifically, Judge Falk concluded that New Jersey is a non-citizen for
diversity purposes, and the presence of a party without citizenship will destroy complete
diversity. The parties were notified that they had fourteen (14) days to submit objections
and responses to the R&R pursuant to Local Civil Rule 72.1(c)(2), and the Veritys
availed themselves of that opportunity.
After conducting a de novo review of the R&R and considering the Veritys’
objections, this Court will adopt the R&R as the Opinion of the Court and will issue an
order remanding this action to state court. Even though the Court adopts the R&R in full,
it will address the Veritys’ objections.
The first objection is that because New Jersey obtained a tax lien against the
Veritys when they were subject to a chapter 13 bankruptcy proceeding, the lien violates
the automatic stay provision of the Bankruptcy Code, See 28 U.S.C. § 362, and is
therefore “void ab initio.” The Veritys proceed to argue that because New Jersey’s tax
lien is void, U.S. Bank fraudulently joined them as a defendant to this action, and the
presence of a fraudulently joined party cannot destroy complete diversity.
The Court rejects this argument. “The doctrine of fraudulent joinder represents an
exception to the requirement that removal be predicated solely upon complete diversity.”
In re Brisco, 448 F.3d 201, 215-16 (3d Cir. 2006) (citations omitted). Joinder is
fraudulent where there is no reasonable basis supporting the claim against the non-diverse
defendant, or where the claims against the non-diverse defendant are made in bad faith.
Id. (citing Batoff v. State Farm Ins. Co., 977 F.2d 848, 851-52 (3d Cir. 1992)). It is true
that where a plaintiff’s claims against a defendant would violate an automatic stay, those
claims must be regarded as fraudulent because there is no reasonable basis to believe that
the claims can move forward. See Brown v. Jevic, 575 F.3d 322, 327 (3d Cir. 2009).
However, this case is readily distinguishable from Jevic because none of U.S. Bank’s
(i.e., Plaintiff’s) claims would violate an automatic stay. See Kallman v. Aronchick, 981
F.Supp.2d 372, 380 (E.D.Pa. 2013) (fraudulent joinder analysis focuses on the substance
of plaintiff’s claims). The Veritys have cited no authority indicating that fraudulent
joinder can be premised on the viability of one co-defendant’s claims against another codefendant in a completely separate proceeding. Moreover, the once-existent automatic
stay does not change the fact that New Jersey asserted an interest in the Veritys’ assets
and then obtained a judgment in its favor. Therefore, there is a reasonable basis
supporting U.S. Bank’s claims against New Jersey and joinder is not fraudulent.
The Veritys’ other objections are without merit. First, the Veritys argue that
“removal of a state’s claim” is not warranted because New Jersey has waived any
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sovereign immunity objections it may have once had. This argument is difficult to
follow, however it fails because New Jersey has not asserted any claims in this action.
Second, the Veritys argue for rejection of the R&R because they plan to assert a federal
claim against Wells Fargo Bank. As Judge Falk already noted in the R&R, “[a] federal
question appearing in a counterclaim cannot establish federal question jurisdiction.”
R&R at 6 (citing Holmes Group, Inc. v. Vornado Air Circulation Systems, Inc., 535 U.S.
826, 830-32 (2002)). It is therefore plainly evident that the Court cannot find federal
question jurisdiction based on a hypothetical federal claim that the Veritys may file in a
separate action. The Court rejects the Veritys’ objections and adopts the R&R as its own
opinion.
U.S. Bank has also requested that the Court award it attorney’s fees and costs.
Under 28 U.S.C. § 1447(c), “[a]n order remanding the case may require payment of just
costs and any actual expenses, including attorney fees, incurred as a result of the
removal.” The decision of whether to award fees and costs lies in the Court’s discretion.
See Siebert v. Norwest Bank Mn., 166 Fed. Appx. 603, 606-07 (3d Cir. 2006). Moreover,
“[a]bsent unusual circumstances, courts may award attorney’s fees under § 1447(c) only
where the removing party lacked an objectively reasonable basis for seeking removal.”
Martin v. Franklin Capital Corp., 546 U.S. 132, 141 (2005). The Veritys’ novel
argument concerning the validity of New Jersey’s lien and its relevance to the fraudulent
joinder analysis is, in this Court’s opinion, incorrect. That said, the Veritys’ did not lack
an objectively reasonable basis for asserting their theory, and courts should not employ §
1447(c) in a manner that would deter parties from making creative arguments.
For the foregoing reasons, the R&R is adopted as the opinion of the Court and
U.S. Bank’s motion to remand is GRANTED. U.S. Bank’s request for attorney’s fees is
DENIED. An appropriate order accompanies this decision.

/s/ William J. Martini
WILLIAM J. MARTINI, U.S.D.J.
Date: April 20, 2015

cc:

The Hon. Mark Falk, U.S.M.J.

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