Sutherland v. Wells Fargo Bank, N.A. et al
Filing
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ORDER granting 8 Motion to Remand and denying as moot 13 Motion to Dismiss for Failure to State a Claim. This case is REMANDED to New Hanover County Superior Court. The Clerk is DIRECTED to send a copy of this order to the Clerk of that court and close the case. Signed by Senior Judge W. Earl Britt on 10/29/2013. (Marsh, K)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NORTH CAROLINA
SOUTHERN DIVISION
NO: 7:13-CV-00072-BR
PATRICIA SUTHERLAND,
Plaintiff,
v.
WELLS FARGO BANK, N.A.,
GRADY I. INGLE,
ELIZABETH B. ELLS,
Defendants.
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ORDER
This matter is before the court on plaintiff’s motion to remand for lack of subject matter
jurisdiction, (DE # 8), and defendant Wells Fargo Bank, N.A.’s (“Wells Fargo”) motion to
dismiss for failure to state a claim upon which relief can be granted pursuant to Federal Rule of
Civil Procedure 12(b)(6), (DE # 13).
I. BACKGROUND
On or about 20 February 2013, plaintiff, a North Carolina citizen, initiated this action in
New Hanover County Superior Court, North Carolina. (Compl., DE # 1-1.) As plaintiff
summarizes:
This proceeding is brought by Plaintiff, Patricia Sutherland,
to enjoin the foreclosure action which has been commenced
against her, and to assert affirmative and defensive claims for relief
against Defendant Wells Fargo due to the illegal and tortious
conduct of Defendant Wells Fargo in connection with the servicing
of Plaintiff’s government-insured mortgage loan. Additionally,
Plaintiff alleges claims for relief herein in defense and recoupment
to the debt for which Defendant Wells Fargo seeks collection
through the foreclosure proceeding. Pursuant to specific language
within Plaintiff’s Promissory Note and Deed of Trust, Defendant
Wells Fargo was and is required to apply specific loss mitigation
treatment to Plaintiff’s loan for the purpose of providing her with
every reasonable opportunity to avoid foreclosure prior to
initiating formal foreclosure proceedings. Defendant Wells Fargo
failed to follow these mandatory loss mitigation measures and
instead breached the provisions in Plaintiff’s Promissory Note and
Deed of Trust by commencing foreclosure proceedings against
Plaintiff and failing to offer loss mitigation assistance . . . .
(Id. ¶ 1.) Plaintiff asserts the following claims against Wells Fargo under North Carolina law:
breach of contract, breach of the duty of good faith and fair dealing, breach of fiduciary duty,
constructive fraud, unfair and deceptive trade practices, fraud, and negligent misrepresentation.
(Id. ¶¶ 144-212.) Plaintiff additionally asserts claims under North Carolina law for preliminary
injunctive relief and equitable estoppel against Wells Fargo and the substitute trustees of the
subject deed of trust, defendants Grady I. Ingle and Elizabeth B. Ells. (Id. ¶¶ 4, 213-29.) In
addition to injunctive relief, plaintiff seeks declaratory and monetary relief. (Id., Prayer for
Relief.)
On 15 April 2013, Wells Fargo removed the action to this court. (Not., DE # 1.) On 14
May 2013, plaintiff filed the motion to remand. On 20 May 2013, Wells Fargo filed the motion
to dismiss. On 16 July 2013, the court, on plaintiff’s unopposed motion, stayed all discovery
proceedings pending resolution of the instant motions. (DE # 25.)
II. DISCUSSION
The court is obligated to first consider its subject matter jurisdiction before considering
whether plaintiff has stated a claim pursuant to Rule 12(b)(6). See Steel Co. v. Citizens for a
Better Env’t, 523 U.S. 83, 94-95 (1998) (“Without jurisdiction the court cannot proceed at all in
any cause. . . . The requirement that jurisdiction be established as a threshold matter springs
from the nature and limits of the judicial power of the United States and is inflexible and without
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exception.” (quotations, citations, and alteration omitted)). Plaintiff contends that Wells Fargo
improperly removed this case from state court and seeks remand and an award of costs and
expenses pursuant to 28 U.S.C. § 1447(c). Wells Fargo, as the removing party, bears the burden
of proving the existence of subject matter jurisdiction. Dixon v. Coburg Dairy, Inc., 369 F.3d
811, 816 (4th Cir. 2004). It contends that the court possesses both diversity jurisdiction under 28
U.S.C. § 1332(a) and federal question jurisdiction under 28 U.S.C. § 1331. The court examines
each basis in turn.
A.
Diversity Jurisdiction
“In order to establish diversity jurisdiction, the parties must be completely diverse; none
of the plaintiffs may share citizenship with any of the defendants.” Owens–Illinois, Inc. v.
Meade, 186 F.3d 435, 440 (4th Cir. 2004). Wells Fargo recognizes that defendants Ingle and
Ells, like plaintiff, are citizens of North Carolina. (Resp., DE # 20, at 1.) However, it urges the
court to disregard this fact based on the doctrine of fraudulent joinder.
“The fraudulent joinder doctrine provides an exception to the complete diversity
requirement.” E.D. ex rel. Dancy v. Pfizer, Inc., 722 F.3d 574, 578 (4th Cir. 2013).
In order to establish that a nondiverse defendant has been
fraudulently joined, the removing party must establish either:
[T]hat there is no possibility that the
plaintiff would be able to establish a
cause of action against the in-state
defendant in state court; or
[T]hat there has been outright fraud
in the plaintiff's pleading of
jurisdictional facts.
The burden on the defendant claiming fraudulent joinder is heavy:
the defendant must show that the plaintiff cannot establish a claim
against the nondiverse defendant even after resolving all issues of
fact and law in the plaintiff's favor. A claim need not ultimately
succeed to defeat removal; only a possibility of a right to relief
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need be asserted.
Marshall v. Manville Sales Corp., 6 F.3d 229, 232-33 (4th Cir. 1993) (emphasis and alterations
in original) (citations omitted). “This standard is even more favorable to the plaintiff than the
standard for ruling on a motion to dismiss under Fed. R. Civ. P. 12(b)(6).” Hartley v. CSX
Transp., Inc., 187 F.3d 422, 424 (4th Cir. 1999) (citation omitted).
Wells Fargo does not suggest that there has been fraud on the part of plaintiff. Rather, it
contends that plaintiff’s complaint is inadequate to establish any cause of action against the
substitute trustee defendants. (See Resp., DE # 20, at 7-9.) Specifically with respect to these
nondiverse defendants, plaintiff alleges that on 27 June 2012, the defendants, as agents of Wells
Fargo and substitute trustees, initiated a foreclosure proceeding against plaintiff’s home in North
Carolina state court based on a mortgage and deed of trust plaintiff had executed and based on
N.C. Gen. Stat. § 45-21.16.1 (Compl., DE # 1-1, ¶ 70; Mem., DE # 9, at 1.) One day later, the
Appointment of the defendants as substitute trustees of the deed of trust was filed with the New
Hanover County Register of Deeds. (Compl., DE # 1-1, ¶ 71 & Ex. L.) That Appointment was
1
This statute authorizes foreclosure under a deed of trust containing a power of sale. See N.C. Gen. Stat. §
45-21.16(a).
At a foreclosure hearing pursuant to N.C. Gen. Stat. § 45–21.16, the
clerk of superior court is limited to making the six findings of fact specified
under subsection (d) of that statute: (1) the existence of a valid debt of which the
party seeking to foreclose is the holder; (2) the existence of default; (3) the
trustee's right to foreclose under the instrument; (4) the sufficiency of notice of
hearing to the record owners of the property; (5) the sufficiency of
pre-foreclosure notice under section 45–102 and the lapse of the periods of time
established by Article 11, if the debt is a home loan as defined under section
45–101(1b); and (6) the sale is not barred by section 45–21.12A. The clerk's
findings are appealable to the superior court for a hearing de novo; however, in a
section 45–21.16 foreclosure proceeding, the superior court's authority is
similarly limited to determining whether the six criteria of N.C. Gen. Stat. §
45–21.16(d) have been satisfied. The superior court “has no equitable
jurisdiction and cannot enjoin foreclosure upon any ground other than the ones
stated in [N.C. Gen.Stat. §] 45–21.16.”
In re Foreclosure of Real Property Under Deed of Trust from Young, 744 S.E.2d 476, 479 (N.C. Ct. App. 2013)
(citations omitted) (alteration in original).
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executed by Wells Fargo’s attorney-in-fact purportedly pursuant to a 14 July 2005 Limited
Power of Attorney. (Id. ¶ 72 & Exs. L, M.) Plaintiff alleges that because Wells Fargo had no
rights or legal interest in plaintiff’s mortgage at the time of the execution of the Limited Power
of Attorney,2 the subsequent “attempted” appointment of the substitute trustees was without
authority, and therefore, the substitute trustees did not lawfully initiate the foreclosure
proceeding. (See id. ¶¶ 74-77.) Plaintiff seeks to enjoin the sale of her home based on this
purported lack of authority (as well as Wells Fargo’s purported failure to follow certain loss
mitigation measures as required by the terms of the mortgage and deed of trust). (Id. ¶¶ 214-15.)
For the same reason, and based on Wells Fargo’s allegedly intentionally inducing plaintiff to
miss a loan payment, which caused the default on the loan and in turn the initiation of the
foreclosure proceeding, plaintiff claims all defendants should be equitably estopped from selling
plaintiff’s home. (Id. ¶¶ 222-29.)
To determine whether these allegations could establish any claim for relief against the
nondiverse substitute trustees, the court looks to North Carolina law. See McFadden v. Fed.
Nat’l Mortg. Ass’n, No. 12-1125, 2013 WL 2151199, at *4-6 & n.5 (4th Cir. May 20, 2013)
(where the defendants raised fraudluent joinder in response to the plaintiffs’ motion to remand,
analyzing Virginia law to determine whether the homeowner plaintiffs would be able to establish
a right to relief against the substitute trustee). Plaintiff seeks injunctive relief against these
defendants pursuant to N.C. Gen. Stat. § 45-21.34. (Compl., DE # 1-1, ¶ 6.) That statute
provides in relevant part that:
Any owner of real estate, or other person, firm or corporation
2
According to plaintiff, Wells Fargo did not acquire the servicing rights to plaintiff’s mortgage until 31 July
2006. (Compl., DE # 1-1, ¶¶ 13, 75.)
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having a legal or equitable interest therein, may apply to a judge of
the superior court, prior to the time that the rights of the parties to
the sale or resale becoming fixed pursuant to G.S. 45-21.29A to
enjoin such sale, upon the ground that the amount bid or price
offered therefor is inadequate and inequitable and will result in
irreparable damage to the owner or other interested person, or
upon any other legal or equitable ground which the court may
deem sufficient . . . .
N.C. Gen. Stat. § 45-21.34. This statute permits a mortgagor, such as plaintiff, to raise legal and
equitable defenses to foreclosure (which she could not raise in the foreclosure proceeding itself)
in a separate action to enjoin the sale. See Young, 744 S.E.2d at 480 (“The [foreclosure] hearing
afforded under N.C. Gen. Stat. § 45–21.16 was not intended to settle all matters in controversy
between mortgagor and mortgagee[.] Rather, for all other ‘matters,’ a party may seek relief
under N.C. Gen. Stat. § 45–21.34 where the court's jurisdiction is much broader. Therefore, [i]f
respondents feel that they have equitable defenses to the foreclosure, they should be asserted in
an action to enjoin the foreclosure sale under [N.C. Gen. Stat. §] 45–21.34.” (most alterations in
original) (citations and quotations omitted)). Equitable estoppel is a defense which may be
raised in an action to enjoin the foreclosure sale. Id.
Wells Fargo contends that plaintiff’s claims are not viable because it is the only proper
party to whom the claims are directed. (See Resp., DE # 20, at 8.) The court disagrees. The
statute pursuant to which plaintiff seeks injunctive relief contemplates that the trustee, among
others, may be enjoined. See N.C. Gen. Stat. § 45-21.34 (“[T]he court or judge enjoining such
sale . . . shall, as a condition precedent, require of the plaintiff or applicant such bond or deposit
as may be necessary to indemnify and save harmless the . . . trustee against costs, depreciation,
interest and other damages . . . .”). Furthermore, because the foreclosure sale remains pending,
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legal title to the subject property remains in the substitute trustees,3 see Sprouse v. N. River Ins.
Co., 344 S.E.2d 555, 559 (N.C. Ct. App. 1986) (“The deed of trust results in legal title to the
property being in the trustee. In a foreclosure title remains in the trustee until he conveys it to
the high bidder.”), and arguably, they are necessary parties, see N.C. Gen. Stat. § 45-45.3(c)
(“Except in matters relating to the foreclosure of the deed of trust or the exercise of a power sale
under the terms, the trustee is neither a necessary nor a proper party to any civil action or
proceeding . . . .”); Crispin v. BAC Home Loans Servicing, LP, No. 5:11-CV-375-FL, 2011 WL
6294319, at *3 n.3 (E.D.N.C. Dec. 15, 2011) (rejecting the substitute trustee defendant’s
argument that it should be dismissed from the action, which included a cause of action to enjoin
foreclosure under § 45-21.34, on the ground that the substitute trustee was not mentioned
frequently in the complaint as “it is a necessary party to any suit to enjoin foreclosure”).
Plaintiff has alleged wrongdoing on the part of the substitute trustees, that is, initiating the
foreclosure proceeding without legal authority.4 Plaintiff’s allegations give rise to the possibility
that she could establish a claim for injunctive relief against the substitute trustees. Accordingly,
the court will not disregard their citizenship. Because diversity between plaintiff and the
substitute trustees is lacking, subject matter jurisdiction does not exist under 28 U.S.C. § 1332.
B.
Federal Question Jurisdiction
Alternatively, Wells Fargo argues that the court possesses subject matter jurisdiction
3
Incidentally, this fact distinguishes this case from McFadden, on which Wells Fargo relies. See 2013 WL
2151199, at *5 (holding that the homeowner plaintiffs could not have prevailed on their quiet title claim against the
substitute trustee because the foreclosure sale had divested the substitute trustee of title and the trustee was properly
appointed).
4
This allegation provides another basis for distinguishing this case from McFadden, See 2013 WL 2151199,
at *6 (holding that the plaintiffs lacked any possibility of prevailing on their equitable relief claim to set aside the
foreclosure sale because their allegations supporting the claim did not reference the substitute trustee or its role in
the sale).
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based on a federal question under 28 U.S.C. § 1331. As the Fourth Circuit Court of Appeals has
explained:
Section 1331 grants district courts “original jurisdiction of all civil
actions arising under the Constitution, laws, or treaties of the
United States.” . . . .
The vast majority of lawsuits “arise under the law that
creates the cause of action.” Thus, [the court] must “first discern
whether federal or state law creates the cause of action. . . . In
cases where federal law creates the cause of action, the courts of
the United States unquestionably have federal subject matter
jurisdiction.” [Where the plaintiff’s cause of action was created by
state] law not federal law, [the] inquiry does not end there.
Instead, [the court] must determine whether this case is within the
“small class of cases where, even though the cause of action is not
created by federal law, the case's resolution depends on resolution
of a federal question sufficiently substantial to arise under federal
law within the meaning of 28 U.S.C. § 1331.” Thus, “a case may
arise under federal law ‘where the vindication of a right under state
law necessarily turn[s] on some construction of federal law,’” but
“only [if] . . . the plaintiff's right to relief necessarily depends on a
substantial question of federal law.” Thus, in the absence of
another jurisdictional ground, a defendant seeking to remove a
case in which state law creates the plaintiff's cause of action must
establish two things: (1) that the plaintiff's right to relief
necessarily depends on a question of federal law, and (2) that the
question of federal law is substantial. If either of these two
elements is lacking, removal is improper and the case should be
remanded to state court.
Dixon, 369 F.3d at 816 (citations omitted) (some alterations in original).
Wells Fargo does not suggest that state law creates plaintiff’s causes of action. Rather, it
contends that all of plaintiff’s claims necessarily depend on a substantial question of federal law.
(See Resp., DE # 20, at 12-13.) “A plaintiff’s right to relief for a given claim necessarily
depends on a question of federal law only when every legal theory supporting the claim requires
resolution of a federal issue.” Dixon, 369 F.3d at 816-17 (emphasis in original); see also Pinney
v. Nokia, Inc., 402 F.3d 430, 442 (4th Cir. 2005) (“A plaintiff’s right to relief necessarily
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depends on a question of federal law when ‘it appears that some . . . disputed question of federal
law is a necessary element of one of the well-pleaded state claims.’ If a plaintiff can establish,
without the resolution of an issue of federal law, all of the essential elements of his state law
claim, then the claim does not necessarily depend on a question of federal law.” (citations
omitted)).
Here, Wells Fargo argues that U.S. Department of Housing and Urban Development,
Federal Housing Administration’s (“FHA”) regulations are “the source of the duty and/or
obligation elements of [plaintiff’s] claims, and an interpretation of [the FHA Home Affordable
Modification Program (“FHA-HAMP”)5] is essential to evaluating Plaintiff’s claims.” (Resp.,
DE # 20, at 13.) The court disagrees. Although plaintiff’s complaint is replete with references
to various federal regulations, mortgagee letters, and the like, when one examines the legal
theories pertaining to each claim, exclusive resort to federal law is not required.
For example, plaintiff first alleges that Wells Fargo breached the terms of the mortgage
and deed of trust. (Compl., ¶¶ 144-50.) Among other things, plaintiff alleges that Wells Fargo
breached these agreements by “expressly instructing Plaintiff not to make her contractual
payments under the Loan terms” and “wrongfully refusing to accept payments from Plaintiff.”
(Id. ¶ 148.) Whether these purported breaches are actionable does not depend in any way on an
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FHA-HAMP is to be distinguished from the Home Affordable Modification Program (“HAMP”). Both
programs were enacted to assist homeowners with modification of their mortgages to avoid foreclosure. However,
FHA-HAMP applies to mortgages insured by the FHA, like plaintiff’s, whereas HAMP applies to mortgages
serviced by participating companies. See 12 U.S.C. §§ 1715u, 5219(a);
http://www.makinghomeaffordable.gov/programs/lower-payments/Pages/hamp.aspx (last visited October 24, 2013);
http://portal.hud.gov/hudportal/HUD?src=/hudprograms/fhahamp (last visited October 24, 2013). Different
regulations/guidelines govern each program. Compare 24 C.F.R. 203, subpt. C; Mortgagee Letters 2012-22 (Nov.
16, 2012), 2009-23 (July 30, 2009), available at
http://portal.hud.gov/hudportal/HUD?src=/program_offices/administration/hudclips/letters/mortgagee with 12
U.S.C. § 5219a; Handbook for Servicers of Non-GSE Mortgages (ver. 4.3, Sept. 16, 2013), available at
https://www.hmpadmin.com/portal/programs/guidance.jsp.
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interpretation of federal law. Similarly, with her second claim, plaintiff alleges that Wells Fargo
“breached its duty of good faith and fair dealing in a number of ways, including[,] but not limited
to[,]” by “[i]nducing Plaintiff to skip contractual payments and pay reduced payments, causing
the Loan to become contractually delinquent.” (Id. ¶ 154.) The court does not need to look to
federal law to evaluate this claim. As to each of plaintiff’s nine claims, at least one legal theory
based on state law supports the claim; in other words, the legal theories supporting plaintiff’s
claims do not rest exclusively on federal law. Therefore, plaintiff’s claims do not necessarily
depend on a question of federal law, and jurisdiction does not exist under § 1331. See Simpkins
v. Suntrust Mortg., Inc., Civil Action No. 2:12cv262, 2013 WL 1966904, at *6-7 (E.D. Va. May
7, 2013) (granting the plaintiff’s motion to remand for lack of federal question jurisdiction even
thought plaintiff’s state law claims for breach of duty of good faith and fair dealing and for
breach of deed of trust referenced HAMP procedures and guidelines).
Finally, the court addresses Wells Fargo’s contention that the court must determine
whether federal law precludes plaintiff’s claims. (See Resp., DE # 20, at 14 (“Consistent with
Wells Fargo’s Motion to Dismiss, this Court must first decide whether federal law precludes
Plaintiff’s alleged state law claims in toto.”).) In this regard, Wells Fargo asserts that none of
plaintiff’s claims are viable because they rely wholly on violations of FHA-HAMP, which itself
does not provide a private right of action. (Mem. Supp. Mot. Dismiss, DE # 14, at 4, 6-15.) This
argument amounts to the assertion of the defense of conflict preemption, which, in contrast to
complete preemption, cannot provide a basis for removal. See Lontz v. Tharp, 413 F.3d 435,
440-41, 442 (4th Cir. 2005) (explaining the difference between complete preemption, whereby a
state law claim is deemed to actually be a federal claim, and conflict or ordinary preemption,
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which “simply declares the primacy of federal law,” and recognizing that “the sine qua non of
complete preemption is a pre-existing federal cause of action that can be brought in the district
courts” (emphasis in original)). Because this defense is not intertwined with Wells Fargo’s
jurisdictional argument, the court declines to address it.
III. CONCLUSION
Neither diversity nor federal question jurisdiction exists, and therefore, plaintiff’s motion
to remand is ALLOWED. Defendant Wells Fargo’s motion to dismiss is DENIED as moot.
This case is REMANDED to New Hanover County Superior Court. The Clerk is DIRECTED to
send a copy of this order to the Clerk of that court and close this case. The court declines to
award plaintiff any costs or expenses.
This 29 October 2013.
__________________________________
W. Earl Britt
Senior U.S. District Judge
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