City Of Cincinnati v. Deutsche Bank National Trust Company, as Trustee et al

Filing 51

ORDER denying 27 Motion to Remand to State Court; granting 34 Motion to realign. The parties are to submit a proposed briefing schedule on the motions to dismiss, etc. by: 5/12/12. Signed by Judge Sandra S Beckwith on 5/2/12. (mb) Modified on 5/2/2012 (mb).

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF OHIO
WESTERN DIVISION
City of Cincinnati,

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Plaintiff,
vs.
Deutsche Bank National Trust
Co., et al,
Defendants.

Case No. 1:12-cv-104

ORDER
Before the Court is Plaintiff’s motion to remand this case
to state court. (Doc. 27)

The Defendants oppose the motion (Doc.

33), and contemporaneously filed a motion to realign the parties.
(Doc. 34)

Both of these motions are fully briefed and ready for

decision.

Further briefing on the Defendants’ motions to dismiss

(Docs. 38, 40 and 41) has been stayed pending the Court’s
decision on remand.

For the following reasons, the Court

concludes that the motion to remand will be denied.
FACTUAL BACKGROUND
The City of Cincinnati filed its complaint against Deutsche
Bank and several related entities, Wells Fargo Bank, and the
Treasurer of Hamilton County, Ohio in the Ohio common pleas court
on December 21, 2011.

(Doc. 18)

The City amended its complaint

a few weeks later, and then filed a second amended complaint in
this Court on February 17, 2012.

(Doc. 29)

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The City generally

seeks injunctive and declaratory relief and money damages against
the Defendant banks, alleging that they have engaged in “unlawful
public nuisance property maintenance business practices” within
the City.

The operative complaint initially alleges that

Defendants unlawfully
... decide whether or not to comply with
state and local property maintenance laws
based solely on the economics associated with
the particular property they own. Thus, in
some neighborhoods in the City, the banks
routinely ignore state and local property
maintenance laws because compliance with
these laws requires the banks to expend funds
they do not expect to recover. If doing so
does not provide an economic benefit,
Deutsche Bank and Wells Fargo will not comply
with the law. This unlawful public nuisance
business practice leads directly to blighted
public nuisance properties in the City and
systematically privatizes economic gain (to
the benefit of Deutsche Bank and Wells Fargo)
and socializes economic loss (to the
detriment of the City and its citizens).
(Doc. 29, paragraph 1)

The City brings several claims for

damages under sections of the Cincinnati Municipal Code; state
law statutory and common law public nuisance claims which also
seek remediation orders; a claim for intentional interference
with the City’s fiduciary responsibilities to its citizens; and a
claim for punitive damages.
Defendants timely removed the case, asserting that diversity
jurisdiction exists among the City and the non-resident Defendant
banks because the County Treasurer should be realigned as a
plaintiff, as its interests are fully aligned with those of the
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City.

Alternatively, Defendants assert that the County Treasurer

is a nominal party and/or was fraudulently joined, and his
citizenship should be disregarded in determining the propriety of
jurisdiction over this action.

(Doc. 1)

Defendants concede that this Court remanded a similar case
brought by the City against these Defendants.

See Cincinnati v.

Deutsche Bank Nat. Trust, et al, Case No. 1:08-cv-888, Doc. 23,
Order of February 10, 2009 remanding to state court.

But

Defendants rely on the decision in Cleveland Hous. Renewal
Project v. Deutsche Bank Trust Co., 621 F.3d 554 (6th Cir. 2010),
raising similar claims against several Deutsche Bank entities and
which was decided after this Court’s prior remand order.

The

Sixth Circuit affirmed the district court’s decision to realign
the City of Cleveland, named as a defendant in that case, finding
that the City’s interests were not adverse to the plaintiff’s
with respect to the main issue in the lawsuit, whether the
defendants were liable under nuisance law for foreclosed and
abandoned properties.
In support of removal, Defendants also assert that they were
involved in the City’s prior state court case from the time it
was remanded in February 2009 until August 2011, when the City
voluntarily dismissed its claims without prejudice.

During that

time, the City did not seek any relief against the County
Treasurer, and the County did not appear or defend the action in

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any meaningful way.

Defendants note that the City’s complaint in

this case similarly makes no claim against the County Treasurer,
and merely alleges that there may be county tax liens against
properties the City contends are nuisances.
Defendants also contend that any “hypothetical” adverse
interest that may arise between the City and the County with
respect to a nuisance claim could only ripen if the City were
successful in prosecuting that claim with respect to any of the
identified properties, and if there were in fact delinquent
property taxes or county assessments on any of those properties.
Defendants submit that at the time of removal, only a few of the
419 properties identified in exhibits to the City’s complaint
were owned by any of the Deutsche Bank entities or Wells Fargo.1
None of those few properties had any county tax delinquencies,
based on information obtained from the county auditor’s website.
(Doc. 1 at ¶18)
The City has moved to remand, arguing that the Treasurer of
Hamilton County is a properly named defendant because the County
is a statutory “interested party” to its nuisance claims, and
under Ohio law must be joined in this action.

1

It relies on this

The Court notes Defendants’ contentions that they do not
“own” these properties, and that some of them are sued as
trustees of various mortgage-backed securitization trusts that
have or had ownership interests. Defendants also contend that
unnamed “loan servicers” are responsible for property
maintenance. The Court need not delve into these issues in order
to resolve the pending motions.
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Court’s conclusion to that effect in the order remanding its
prior lawsuit.

It alleges that many of the properties identified

in its complaint are in fact delinquent in property taxes, citing
the Treasurer’s answer to its complaint which generally states
that taxes, assessments, and other charges are due against
properties identified in the City’s complaint.

(Doc. 21)

The

City argues that the Sixth Circuit’s decision in CHRP v. Deutsche
Bank is distinguishable, because the plaintiff in that case was a
non-profit community development corporation operating within the
City of Cleveland, and that CHRP and Cleveland shared an interest
in blight abatement.

That is not the case with respect to the

City of Cincinnati and Hamilton County, the City contends,
because the county has not enacted legislation targeting property
maintenance and is not actively prosecuting remediation efforts
in the city.

With regard to the handful of properties Defendants

claim have no tax liens against them, the City responds that
Exhibits B and C to its complaint identify properties at issue,
but that the complaint also alleges:
Exhibits B and C necessarily cannot include
noncompliant properties hereinafter acquired
by Deutsche Bank and Wells Fargo. This
information will become available through
discovery and the City will supplement its
exhibits as necessary. The prospective
properties are within the scope of this
[complaint] because they implicate Deutsche
Bank’s and Wells Fargo’s public nuisance
business practices that proximately cause the
creation and perpetuation of public nuisance
properties. Other noncompliant properties
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currently owned by the banks may not yet be
known to the City because of the time lag
(several weeks to several months) within
which new ownership information becomes
available from the Hamilton County Auditor.
(Doc. 29, Second Amended Complaint at ¶19) The City essentially
argues that the parties are in the same position they were in
when this Court remanded the prior lawsuit.
In their combined response and motion to realign the County
Treasurer (Docs. 33 and 34), Defendants again contend that the
Sixth Circuit’s decision in CHRP v. Deutsche Bank requires a
different result.

They also contend that the undisputed evidence

(see Doc. 35, Exhibit C, certified copies of tax statements from
the County Auditor’s office showing no delinquencies for eight
parcels titled in Defendants’ names) shows that the County
Treasurer is not an “interested party.”

And unlike the situation

before this Court in 2008, when the extent of the County’s
interests in the City’s claims were unsettled, Defendants note
many efforts undertaken by the County in the past two years to
combat blight, some in conjunction with the City.

They

alternatively contend that the Court should treat the Treasurer
as a nominal party, a dispensable party under Rule 21, or find
that the Treasurer was fraudulently joined.
As the parties seeking removal, Defendants have the burden
of establishing the existence of federal jurisdiction.

“The

removal petition is to be strictly construed, with all doubts

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resolved against removal.”

Her Majesty the Queen v. Detroit, 874

F.2d 332, 339 (1989), citing Wilson v. USDA, 584 F.2d 137, 142
(6th Cir. 1978).

A “nominal” party is one who has no real and

substantial interest in the action or is a mere stakeholder.
citizenship may be disregarded in determining jurisdiction.
Navarro Sav. Ass’n v. Lee, 446 U.S. 458, 461 (1980).

Its
See

To

determine if the City’s joinder of the County Treasurer is
improper or fraudulent, the Court must determine if the City has
“at least a colorable cause of action” against the County under
Ohio law.

Jerome-Duncan, Inc. v. Auto-By-Tel, LLC, 176 F.3d 904,

907 (6th Cir. 1999).

Any disputes or ambiguities concerning the

applicable state law are resolved in favor of the City as the
non-removing party.

Alexander v. EDS Corp., 13 F.3d 940, 949

(6th Cir. 1994).
There is no dispute that the City’s claims for money damages
arising under the Cincinnati Municipal Code, and its claims of
intentional interference and for punitive damages, do not seek
any relief against the County.

The City contends that the heart

of its complaint, as was the case with its 2008 lawsuit, is the
nuisance claims.

As the Court’s prior remand order noted, an

Ohio nuisance complainant is required to serve all “interested
parties,” specifically defined as “any owner, mortgagee,
lienholder, tenant, or person that possesses an interest of
record in any property that becomes subject to the jurisdiction

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of a court pursuant to this section ...”.
§3767.41(A)(4).

Ohio Rev. Code

If the property owner refuses to abate the

nuisance conditions, a receiver may be appointed.

All expenses

incurred in the abatement process constitute a first and best
lien on the property, superior to any county property tax liens.
Ohio Rev. Code §3767.41(H)(2).

The Court previously concluded

that the County Treasurer falls within the definition of
“interested party,” because a successful nuisance claim could
adversely affect county tax liens.
As a general rule, the existence of subject matter
jurisdiction is determined by the complaint as it existed at the
time of removal.

See, e.g., Harper v. AutoAlliance Int’l, Inc.,

392 F.3d 195, 210-211 (6th Cir. 2004).

The City has alleged that

it cannot identify all of the properties the Defendants “own” at
any given moment in time, due to the rather fluid nature of the
housing market and delays in processing title information through
the county auditor’s office.

The complaint recites events

concerning a specific property that was at issue in the 2008
lawsuit, 3142 Bracken Woods Lane.

The City contends that

Deutsche Bank admitted during a hearing in this Court that it
held title to that property, and it agreed to a status quo order
until the Court decided the City’s motion to remand.

It was

later discovered that Deutsche Bank had transferred that property
prior to the hearing, a fact its own lawyers apparently were not

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aware of at the time.

The Court has also reviewed some of the

voluminous records submitted by the Defendants in support of
their arguments that they do not own the vast majority of the
properties identified in Exhibits A and B to the City’s
complaint.

The transfer history on many of these properties

reveals repeated transfers, oftentimes at greatly reduced prices.
For example, the transfer history for the first property in
Exhibit A, 1003 Beech Avenue, reflects that on February 7, 2007,
the previous owner transferred title to “Deutsche Bank Trust
Company AM” for $40,000.

The next transfer occurred on July 11,

2011, from Deutsche Bank to “Residential Funding Company LL,” and
the same day a second transfer from Residential Funding to “Thor
Real Estate LLC” with a listed price of $4,896.

Thor Real Estate

then transferred title on December 2, 2011 to an individual for
$15,689.

Similar transfer patterns can be seen on many other

properties, including transfers to entities outside of Ohio such
as “37th Parallel Properties, Inc.” and “REO Nationwide LLC.”
These facts lend some credence to the City’s allegation that it
is difficult or impossible to track up-to-the-minute title
information for any specific property, and to the City’s
contention that its claims are directed at “vacant, problem
buildings and properties that have been or are owned” by the
Defendants, as well as “all other properties now owned or
hereinafter acquired by the banks that fail to meet the minimum

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standards of property maintenance.”

(Doc. 29 at ¶20).

Since

there may be other properties discovered in the future that do
have tax liens against them, the City contends that the Treasurer
is a proper defendant.
The Sixth Circuit has held that “... the courts, not the
parties, are responsible for aligning the parties according to
their interests in the litigation.

If the interests of a party

named as a defendant coincide with those of the plaintiff in
relation to the purpose of the lawsuit, the named defendant must
be realigned as a plaintiff for jurisdictional purposes.”

U.S.

Fidelity & Guaranty Co. v. Thomas Solvent Co., 955 F.2d 1085,
1089 (6th Cir. 1992) (internal citation omitted).

There, the

court affirmed the district court’s realignment of the parties
which destroyed diversity.

The action was originally brought by

an insurer against a number of insureds and additional insurers
seeking a declaration that it had no duty to defend or indemnify
the insureds, and asserting contribution claims against the other
insurers.

The district court realigned all of the insurers as

plaintiffs, and all of the insureds as defendants.

The Sixth

Circuit found that even though there was an actual conflict
between the plaintiff and the insurer defendants as originally
aligned, the primary issue in the case which required realignment
was whether any of the insurers were obligated to defend or
indemnify any of the insureds.

The Sixth Circuit cited

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Indianapolis Gas v. Chase National Bank, 314 U.S. 63 (1941),
which held that in determining proper alignment of the parties,
“whether the necessary collision of interests exists, is not to
be determined by mechanical rules.

It must be ascertained from

the principal purpose of the suit, ... and the primary and
controlling matter in dispute.”
omitted).

Id. (internal quotations

Here, if the County Treasurer is realigned as a

plaintiff as Defendants seek, complete diversity would exist.
In CHRP v. Deutsche Bank, the plaintiff was a non-profit
housing advocacy group operating within the City of Cleveland.
Its complaint alleged that 25 vacant properties owned by Deutsche
Bank were a public nuisance.

It also alleged that Deutsche

Bank’s business practices with respect to foreclosures amounted
to a common law nuisance.

CHRP named the City of Cleveland as a

defendant, alleging that the City “may have or claim to have some
interest in real property that is the subject of this action by
virtue of code violations, utility assessments and Nuisance
abatement costs.”

CHRP v. Deutsche Bank, 606 F.Supp.2d 698, 709

(N.D. Ohio 2009).

CHRP argued to the district court that the

“ultimate purpose of this action is to abate the conditions
creating a nuisance at the Properties, and complete relief
requires action by the City and (therefore) the City’s presence
as an adverse party.”

Id.

CHRP claimed that the City was or

might be a lien holder on the properties, and that without the

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City joined as a defendant, its interests would be jeopardized.
The district court concluded that CHRP’s purpose in joining the
City as a defendant was ancillary to the primary goal of the
lawsuit, to abate the conditions that created a nuisance.

CHRP’s

interests in that primary goal were in fact allied with the
City’s, as illustrated by the City’s cross-claims against
Deutsche Bank for abatement costs and unpaid water bills.
The Sixth Circuit affirmed the realignment, finding that the
City’s interest in any assessments or liens on any of the
properties was ancillary to the ultimate purpose of CHRP’s
lawsuit.

It noted that all of the injunctive and declaratory

relief sought by CHRP would undoubtedly benefit the City of
Cleveland’s interests.

And any “potentially adverse interests”

arising from any City liens on any of the properties were clearly
secondary to the primary controversy.
F.3d at 560.
claims.

CHRP v. Deutsche Bank, 621

This conclusion was bolstered by the City’s cross

The Sixth Circuit noted that in order to “find error in

the district court’s realignment of the parties, we would have to
disregard the teaching of Thomas Solvent and Indianapolis v.
Chase Nat’l Bank.

This we are unwilling to do.”

Id.

Despite the City of Cincinnati’s attempts to do so, the
Court cannot meaningfully distinguish the circumstances presented
in CHRP v. Deutsche Bank from the circumstances presented by the
record in this case.

The City of Cincinnati, as did CHRP,

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contends that the primary goal of its lawsuit is to abate
nuisances that have been and are being created by Defendants’
actions and inactions with regard to properties within the City.
The City argues that the County Treasurer, as CHRP argued about
the City of Cleveland, may have some interest in some of the
properties due to assessments or liens.

The City argues that the

County Treasurer must be joined as a defendant to ensure that
complete relief on its claims can be granted.

CHRP made the same

argument with respect to Cleveland, alleging that City action
would be required to demolish any of the blighted properties.
The fact that CHRP is a non-profit agency and the City of
Cincinnati is a unit of government does not, in the Court’s view,
distinguish these cases.

It is not the legal status of the

plaintiff, but the primary purpose of the lawsuit that is the
critical question in determining realignment.

And the fact that

the County Treasurer has not asserted a cross-claim against the
Defendants in this case, as the City of Cleveland had done in
CHRP’s lawsuit, is not determinative of whether its interests are
aligned with the City’s.

The City argues that Hamilton County is

not actively engaged in remediation efforts; even assuming that
is true, it does not compel a conclusion that the County’s
interests with respect to the City’s remediation efforts and its
claims against the Defendants are adverse.

In view of the Sixth

Circuit’s firm conclusion that reversing the district court’s

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realignment of CHRP and the City of Cleveland would be contrary
to well-established precedent, the Court must conclude that
realignment is proper in this case.
The Court also finds persuasive the Defendants’ contention
(which the City has not challenged) that the County Treasurer
took no active role in the prior state litigation between these
parties.

After remand, the Treasurer did not attend or

participate in any court status conferences nor submit written
briefs on any motions filed in that case.

When this Court

remanded the City’s previous case, the complaint had only
recently been filed, and it was unclear at that very early stage
of the case whether the City and County interests were aligned,
or the extent of any real adversity between them.

The history of

the litigation in state court, as described by the Defendants,
supports a conclusion that at this juncture the County Treasurer
is not adverse to the City’s claims, and should be realigned.
Given this conclusion, the Court will not address
Defendants’ alternative arguments concerning fraudulent joinder
or whether the County Treasurer is a nominal party.
CONCLUSION
After reviewing the record and the parties’ arguments, the
Court must conclude that the County Treasurer should be realigned
with the Plaintiff, as its interests are not adverse to the
City’s with respect to the substantive issues raised by the

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primary purpose of Plaintiff’s complaint.

The complaint does not

establish the existence of an actual and substantial controversy
between the City and the County Treasurer.

Complete diversity

therefore exists among the realigned parties, and this Court may
exercise jurisdiction under 28 U.S.C. §1332.
For all of these reasons, Defendants’ motion to realign
(Doc. 34) is granted, and Plaintiff’s motion to remand (Doc. 27)
is denied.

The parties shall confer upon an appropriate schedule

to complete briefing on the pending motions to dismiss or for a
more definite statement (Docs. 38, 40 and 41), and submit a
proposed schedule to the Court no later than May 12, 2012.
SO ORDERED.
DATED: May 2, 2012

s/Sandra S. Beckwith
Sandra S. Beckwith
Senior United States District Judge

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