City of Schenectady v. American Tax Funding, LLC

Filing 15

MEMORANDUM-DECISION AND ORDER denying 4 Motion to Remand to State Court: ORDERED that plaintiffs motion to remand this matter to state court (Dkt. No. 4) is DENIED with leave to renew within thirty days of the date of this Order; and it is further ORDERED that plaintiffs motion for attorneys fees and costs is DENIED. Signed by U.S. District Judge Mae A. D'Agostino on 3/22/13. (ban)

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF NEW YORK
________________________________________________
CITY OF SCHENECTADY,
Plaintiff,
v.

1:12-CV-1026
(MAD/RFT)

AMERICAN TAX FUNDING, LLC.,
Defendant.
________________________________________________

APPEARANCES:

OF COUNSEL:

CORPORATION COUNSEL
Jay Street
Room 201
City Hall
Schenectady, New York 12305
Attorney for Plaintiff

John R. Polster, Esq.

CAMARDO LAW FIRM P.C.
127 Genesee Street
Auburn, New York 13021
Attorney for Defendant

Joseph A. Camardo, Jr., Esq.

MAE A. D’AGOSTINO, U. S. DISTRICT JUDGE
MEMORANDUM-DECISION AND ORDER
INTRODUCTION
On June 25, 2012, defendant American Tax Funding, LLC. (“ATF”) removed this action
to district court asserting jurisdiction pursuant to 28 U.S.C. §§ 1331, 1441 and 1446. Presently
before the Court is plaintiff’s motion to remand the action to state court and for attorneys’ fees
and costs. (Dkt. No. 4). Defendant has opposed the motion.

BACKGROUND1
On May 15, 2012, plaintiff commenced an action in New York State Supreme Court,
Schenectady County with the filing of a Petition and Notice of Foreclosure. The action is entitled
In the Matter of Foreclosure of 2208-2209 Tax Liens By Proceeding In Rem Pursuant to Article
11 of The Real Property Tax Law By the City of Schenectady (Index No. 2012-405). Plaintiff
sought to foreclose against owners of approximately 700 properties with delinquent 2008-2009
tax liens. The properties were identified in a list annexed to plaintiff’s petition.
According to Tadgh Macaulay, the Vice President of ATF, in 2004 and 2009, ATF
entered into two Purchase and Sale Agreements with plaintiff wherein ATF purchased the bulk of
the City’s tax lien portfolio and acquired all collection rights and remedies, including the right to
foreclose and the right to purchase subsequent liens. Macaulay avers that ATF prior to the filing
of the within Notice of Petition, ATF commenced foreclosure actions on many of the same
properties listed in plaintiff’s petition and those actions are still pending.
Plaintiff is a municipal corporation formed and existing under the laws of the State of
New York. ATF is a Florida limited liability company. The parties agree that the amount in
controversy is in excess of $75,000.00.
Plaintiff argues that defendant is one of many identifiable defendants in the underlying
state court foreclosure action and as defendant failed to obtain the consent of the remaining
defendants, the case must be remanded to state court due to the lack of complete diversity.
Plaintiff also argues that defendant’s vague assertions under the Fifth and Fourteenth
Amendments lack merit. Defendant contends that exceptions to the “unanimity rule” including,
fraudulent joinder, apply herein because plaintiff cannot state a cause of action against the non1

The background information is taken from the affidavits submitted in connection with the motion. These
are not findings of facts by the Court.
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diverse defendants in state court. Moreover, defendant argues that there is no proof in the record
that the alleged non-diverse defendants have been served.
DISCUSSION
I.

Motion to Remand
Federal district courts are courts of limited jurisdiction. Under 28 U.S.C. § 1332(a), a

federal court has jurisdiction over the subject matter of a civil action where the amount in
controversy exceeds the sum or value of $75,000, exclusive of interests and costs, and is between
citizens of different states. See 28 U.S.C. § 1332(a).2 “The ‘party invoking the jurisdiction of the
federal court has the burden of proving that it appears to a reasonable probability that the claim is
in excess of the statutory jurisdictional amount.’” Pollock v. Trustmark Ins. Co., 367 F.Supp.2d
293, 296 (E.D.N.Y.2005) (quoting Scherer v. The Equitable Life Assurance Soc'y of the U.S., 347
F.3d 394, 398 (2d Cir. 2003)).
A defendant may remove to federal court “ ‘any civil action brought in a State court of
which the district courts of the United States have original jurisdiction.’” Shapiro v. Logistec USA
Inc., 412 F.3d 307, 309–10 (2d Cir. 2005) (quoting 28 U.S.C. § 1441(a)).3 However, once a case
has been removed, it must be remanded “ ‘[i]f at any time before final judgment it appears that the
district court lacks subject matter jurisdiction.’” Id. at 310 (quoting 28 U.S.C. § 1447). Where, as

2

28 U.S.C. § 1332 provides in part:

(a) The district courts shall have original jurisdiction of all civil actions where the matter in controversy
exceeds the sum or value of $75,000, exclusive of interest and costs, and is between - (1) citizens of different
States[.]
3

28 U.S.C. § 1441 provides in part:

(a) [A]ny civil action brought in a State court of which the district courts of the United States have original
jurisdiction, may be removed by the defendant or the defendants, to the district court of the United States[.]
(b) [An action] ... shall be removable only if none of the parties in interest properly joined and served as
defendants is a citizen of the state in which the action is brought.
3

here, jurisdiction is asserted by a defendant in a removal petition, the defendant bears the burden
of establishing that removal is proper. See Cal. Pub. Emp. Ret. Sys. v. WorldCom, Inc., 368 F.3d
86, 100 (2d Cir. 2004) (citations omitted). If there are any doubts as to removability, they are
resolved against removability “out of respect for the limited jurisdiction of the federal courts and
the rights of the states.” In re Methyl Tertiary Butyl Ether (“MTBE”) Prods. Liab. Litig., 488
F.3d 112, 124 (2d Cir. 2007) (citation omitted). Although there is a presumption that the court has
jurisdiction when the matter is brought in federal court in the first instance, “[a] defendant
removing a case to federal court encounters instead the general principle that removal is
disfavored and remand favored.” Pollock, 367 F.Supp.2d at 296–97 (citation omitted).
Here, defendant based its removal on diversity jurisdiction pursuant to 28 U.S.C. § 1332.
It is well settled that to invoke diversity jurisdiction under 28 U.S.C. § 1332, there must be
complete diversity of citizenship. See Lincoln Prop. Co. v. Roche, 546 U.S. 81, 89 (2005). In
other words, the court lacks diversity jurisdiction if any plaintiff is a citizen of the same state as
any defendant. See, e.g., St. Paul Fire & Marine Ins. Co. v. Universal Builders Supply, 409 F.3d
73, 80 (2d Cir. 2005). In cases where there are multiple defendants, the Rule of Unanimity
requires that “all named defendants over whom the state court acquired jurisdiction must join in
the removal petition for removal to be proper.” Sleight v. Ford Motor Co., 2010 WL 3528533, at
*1 (E.D.N.Y. 2010) (citations omitted). There are several exceptions to the rule of unanimity that
would allow for an action to be properly removed to federal court even without unambiguous
consent from all defendants. Lifschultz v. Lifschultz, 2012 WL 2359888, at *6 (S.D.N.Y. 2012).
Federal courts are able to retain jurisdiction over a case that has been removed without the
unambiguous consent of all defendants where “(1) the non-[consenting] defendants have not been
served with service of process at the time the removal petition is filed; (2) the non-[consenting]
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defendants are merely nominal or formal parties; and (3) the removed claim is a separate and
independent claim as defined by 28 U.S.C. § 1441(c).” Id. (citations omitted).
A.

Fraudulent Joinder

When a defendant is fraudulently joined, the Rule of Unanimity may be disregarded. Id.
Where a plaintiff challenges removal on the ground that the presence of non-diverse parties
defeats federal jurisdiction, a defendant may show that the non-diverse parties have no real
connection with the controversy and were “fraudulently joined” for the sole purpose of destroying
diversity. Moran v. Cont’l Cas. Co., 2001 WL 1717214, at *2 -3 (N.D.N.Y. 2001). “In order to
show that naming a non-diverse defendant is a ‘fraudulent joinder’ effected to defeat diversity,
the defendant must demonstrate, by clear and convincing evidence, either that there has been
outright fraud committed in the plaintiff's pleadings, or that there is no possibility, based on the
pleadings, that a plaintiff can state a cause of action against the non-diverse defendant in state
court.” Pampillonia v. RJR Nabisco, Inc., 138 F.3d 459, 461 (2d Cir.1998) (citations and
footnotes omitted). The defendant seeking removal bears a heavy burden of proving fraudulent
joinder, and all factual and legal issues must be resolved in favor of the plaintiff. Id.
The defendants' burden in establishing fraudulent joinder is greater than on a motion to
dismiss for failure to state a claim. Sleight, 2010 WL 3528533, at *1 (citations omitted). “While
the plaintiff[s'] pleadings must contain sufficient factual foundations to support any allegations
against [the forum defendant], there is no requirement that plaintiff[s'] recovery in state court be
reasonably likely.” Id. (citing Nemazee v. Premier, Inc., 232 F.Supp.2d 172, 178 (S.D.N.Y.
2002) (“Any possibility of recovery, even if slim, militates against a finding of fraudulent joinder;
only where there is ‘no possibility’ of recovery is such a finding warranted.”)). Courts in this
Circuit have interpreted the Pampillonia language strictly. Durove v. Fabian Transp., Inc., 2004
5

WL 2912891, at *3 (S.D.N.Y. 2004) (citing Stan Winston Creatures, Inc. v. Toys “R” Us, Inc.,
2003 WL 1907978 at *4 (S.D.N.Y. 2003) (concluding that defendants had not shown that it was
“legally impossible” for nondiverse defendant to be liable under state law)). “[I]n order to
resolve a dispute about fraudulent joinder, [the court] must engage only in a ‘synoptic rather than
microscopic’ analysis and not an in-depth review of the merits of this case.” Texas E.
Transmission Corp. v. Fidelity & Cas. Co. of New York, 1995 WL 596155, at *2 (E.D.Pa. 1995).
In this matter, defendant argues that plaintiff’s action against the non-diverse defendants
cannot be maintained because defendant previously filed many foreclosure actions against “many
of the 200 properties” involved in the subject action and that those proceedings are still pending
in state court. Plaintiff contends that the within foreclosure action seeks to foreclose on tax liens
from 2008 and 2009 while ATF’s foreclosure actions do not cover the same period of time.
Defendant annexed a copy of a pleading in one of the subject foreclosure actions that is allegedly
pending in state court. Defendant contends that based upon the allegations in the complaint, “it is
impossible for the City’s action to be maintained when an earlier pending action has already been
filed by ATF”.
Defendant’s conclusory assertions are insufficient to meet the onerous burden of
establishing fraudulent joinder. Defendant has done nothing more than annex a sample
complaint. Viewing all factual and legal issues in plaintiffs favor, the Court finds that defendant
has not met the heavy burden of proving fraudulent joiner based upon the previously filed actions.
Defendant also argues that plaintiff cannot assert any cause of action against the nondiverse defendants due to the language of the Purchase and Sale Agreements. Specifically,
defendant contends that the City does not have a legal basis to initiate foreclosure proceedings
that would “cut off ATF’s rights in the liens that it purchased”. Plaintiff contends that the instant
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action is not covered in the underlying contract. The parties cite to Article X of the “Purchase
and Sale Agreements of Delinquent Tax Liens Between the City of Schenectady, New York and
American Tax Funding, LLC”4 dated October 2004 and August 2009 which provide, inter alia:
With respect to Sold Tax Liens upon which the Buyer wishes to
commence foreclosure actions or collections proceedings upon:
B)

Pursuing Collection Actions

Decisions with respect to undertaking and pursuing foreclosure actions
and other efforts toward collecting the Sold Tax Liens are decisions
of the Buyer, and Buyer shall bear the fees, costs, expenses and
responsibilities thereof.
With respect to tax Liens becoming due and payable subsequent to the
Sold Tax Liens:
A)

Priorities

While Sold Tax Liens shall be assigned and held by the Buyer with the
priority and precedence accorded by the Statutes and the Act, the City
reserves the right to enforce any such Subsequent Tax Lien not
assigned to the Buyer or to a third party in any manner provided by
law, but must give ATF a first right of refusal in acquiring said tax
lien prior to the City selling it to a third party.
The Court will not make a ruling with respect to the interpretation of the Purchase and
Sale Agreement. The Court must construe the legal and factual issues in favor of plaintiff and
therefore, the Court finds that plaintiff's reading of the contract “is not so implausible as to
obviate any possibility that it could maintain a cause of action”. Discovision Assoc. v. Fuji Photo
Film Co., Ltd., 2007 WL 5161825, at *4 (S.D.N.Y. 2007) (“this conclusion does not give greater
credence to either party's interpretation; rather, it leaves that determination for the state court to
make on the basis of a complete evidentiary record”). Defendant has failed to establish by clear

4

The agreements were annexed to defendant’s answer. (Dkt. No. 7)
7

and convincing evidence that there is no possibility that plaintiff can state a cause of action
against the non-diverse defendants.
B.

Service of Process

Defendant also claims that the Rule of Unanimity may be disregarded because plaintiff’s
affidavit of service does not establish that it effectuated service against the non-diverse
defendants at the time the removal petition was filed. Defendant claims that the affidavit of
service is upon ATF and it’s counsel but that no proof of service has been filed or submitted with
respect to other persons or entities.
When there are multiple defendants, “[t]he rule of unanimity requires that in order for a
notice of removal to be properly before the court, all defendants who have been served or
otherwise properly joined in the action must either join in the removal, or file a written consent to
the removal .” Brierly v. Alusuisse Flexible Packaging, Inc., 184 F.3d 527, 529 n. 3 (6th
Cir.1999). A defendant not subject to state court jurisdiction through proper service of process at
the time of removal is excused from the unanimity requirement. Newkirk v. Clinomics
Biosciences, Inc., 2006 WL 2355854, at *3 -4 (N.D.N.Y. 2006) (citation omitted) (the remaining
defendant was not subject to the state court's jurisdiction until the plaintiffs filed their affidavit of
compliance pursuant to section 307).
Plaintiff claims that it promptly served notice on all persons and/or entities owning or
having or claiming to have an interest in the subject properties. In support of service, plaintiff
relies upon the assertions of counsel in paragraph 7 of his September17, 2012 affirmation
submitted in response to defendant’s opposition. In Paragraph 7, counsel asserts that on May 25,
2012, a mailing was made to all property owners with notice of the foreclosure proceeding.
Counsel attached a copy of the “mailing list” and avers:
8

A copy of the mailing list is attached Exhibit A (it will be seen that
there are a number of parties that are marked with red text; those are
property owners of parcels upon with ATF is now claiming interest).
Each party listed (either an owner or a party with interest in the
property) was sent two notices. One by regular first class mail, and
one by certified mail, return receipt. The number of the certified
mailing is listed for each party. Because of the number of properties
involved, a single mailing, on May 25th, 2012, with a complete list was
sent to ATF.
Moreover, counsel asserts that there was full publication in two newspapers as required by
law.
Based upon the record herein, the Court cannot conclude that the non-diverse defendants
were properly served. Counsel’s assertions regarding the mailings are insufficient to establish
proof of service. Counsel did not annex any of the following documentation: (1) copies of any
affidavits of service on the non-diverse defendants; (2) copies of certified mailings or return
receipts; (3) a copy of any public notice; or (4) the name of the newspapers or date of such notice.
On June 25, 2012, defendant filed a notice of removal. At that time, plaintiff had not filed an
affidavit of compliance in satisfaction of their service of process obligation as to the other
defendants. Indeed, plaintiff still has not filed the proper affidavits of service. Moreover,
plaintiff’s arguments in support of proper service are belied by plaintiff’s prior arguments
regarding the fraudulent joinder. In opposition to this argument, counsel alleges that notice to
ATF is sufficient on the parcels upon which ATF is now claiming interest. However, in support
of lack of complete diversity, plaintiff went to great lengths to argue that each property owner is
unique and that “[w]ithout obtaining their consent, or at the very lease, putting them on notice of
the potential removal to Federal Court, they will have no knowledge that they must now appear in
Federal Court as opposed to State Court, to protect their interest”.

9

Here, based upon the record, defendant filed its removal petition prior to plaintiff properly
serving the remaining defendants. Thus, defendant was not required to obtain the non-diverse
defendants’ consent for removal. Accordingly, plaintiff’s motion to remand is denied.
However, given the limited jurisdiction of the federal court and the general “disfavor”
towards removal, this Court is reluctant to exercise jurisdiction over this matter based solely upon
procedural defects in plaintiff’s motion. Therefore, plaintiff is permitted to renew the within
motion within thirty days with proof of proper service upon the non-diverse defendants or “more
meaningful evidence” to dispute defendant’s contentions regarding service. See Gonzalez v.
Edelman, 1997 WL 394953, at *1 (S.D.N.Y. 1997). Counsel is cautioned to refrain from
including any arguments or discussions relating to issues resolved in this Part IA of this Order.
II.

Motion for Costs
Plaintiff has also moved to recover costs, attorney's fees and sanctions.

28 U.S.C. § 1447( C) states that an “order remanding the case may require the payment of just
costs and actual expenses, including attorney fees, incurred as a result of the removal.”
Assessment of costs and fees against the removing defendants is within the court's discretion and
does not require a finding of bad faith or frivolity. See Morgan Guar. Trust Co. v. Republic of
Palau, 971 F.2d 917, 923-24 (2d Cir. 1992). Here, the Court, in its discretion denies costs,
attorney's fees and sanctions.
CONCLUSION
IT IS HEREBY
ORDERED that plaintiff’s motion to remand this matter to state court (Dkt. No. 4) is
DENIED with leave to renew within thirty days of the date of this Order; and it is further

10

ORDERED that plaintiff’s motion for attorneys’ fees and costs is DENIED.
IT IS SO ORDERED.
Dated: March 22, 2013
Albany, New York

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