Hernandez, et al v. U.S. Bank N.A.
Filing
17
OPINION AND ORDER granting 8 Motion to Remand to State Court (Certified copy of order sent to the Clerk of Court for the state court in accordance with 28 U.S.C. 1447(c)); denying as moot 5 Motion to Set Aside Default; denying as moot 15 Joint MOTION To Rescind Foreclosure and For Approval of Stipulation and Judgment Rescinding Foreclosure and Dissolving Lis Pendens. So Ordered by Chief Judge William E. Smith on 6/18/2018. (Jackson, Ryan)
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF RHODE ISLAND
___________________________________
)
OSCAR HERNANDEZ and MARTHA VALLE
)
NAVARRO,
)
)
Plaintiffs,
)
C.A. No. 18-121 WES
)
v.
)
)
)
US BANK, N.A., and OCWEN LOAN
)
SERVICING, LLC,
)
)
Defendants.
)
___________________________________)
OPINION AND ORDER
WILLIAM E. SMITH, Chief Judge.
Plaintiffs filed this action in state court to rescind what
they consider a faulty foreclosure. (Compl., ECF No. 1-1.) After
the case was filed, but not before the state court entered a
default
against
Ocwen
Loan
Servicing,
LLC,
(“Ocwen
Loan”),
Defendants removed it to this Court. (Notice of Removal, ECF No.
1.) Pending now are Plaintiffs’ Motion to Remand (ECF No. 8) and
Ocwen Loan’s Motion to Vacate Entry of Default (ECF No. 5). Also
pending is the parties’ Joint Motion to Rescind Foreclosure (ECF
No. 15). The Court GRANTS Plaintiffs’ Motion, remanding the case
to state court and rendering the two later-filed Motions moot.
I.
Background
This case started with Plaintiffs filing their complaint in
Rhode Island Superior Court on December 13, 2017. (Defs.’ Mem. of
Law in Supp. of Obj. to Pls.’ Mot. to Remand 2, ECF No. 9-1.) The
complaint
alleges
–
and
it
is
undisputed
for
purposes
of
Plaintiffs’ Motion – that US Bank, N.A., (“US Bank”) was the last
to hold and Ocwen Loan the last to service Plaintiffs’ mortgage.
(Compl. ¶ 6.) The (previously) mortgaged property is located at
176-178 Grove Street in Woonsocket, Rhode Island, (“Property”),
and was Plaintiffs’ primary residence before US Bank bought it at
a foreclosure sale. (Id. at ¶¶ 2, 5, 16-17.)
Plaintiffs claim that Defendants unlawfully foreclosed on the
Property. (Id. at ¶¶ 18-19.) They ask the Court to rescind the
foreclosure sale and to award an unspecified amount of compensatory
and punitive damages, and attorneys’ fees. (Id. at ¶¶ 1[a]–5[a].)
Notably, Plaintiffs do not ask that the mortgage and note be
invalidated. (See id.; Pls.’ Mem. in Supp. of Mot. to Remand 2-3,
ECF No. 8-1 (“Pls.’ Mem.”).) Nor do they ask that Defendants be
prevented from foreclosing on the mortgage. (See Compl. ¶¶ 1[a]–
5[a]; Pls.’ Mem. 2-3.) What they ask is that the status quo ante
be restored, so that if Defendants foreclose, they do so in
accordance with the law. (See Compl. ¶¶ 1[a]–5[a]; Pls.’ Mem. 23.)
The parties agree that they are completely diverse. (See
Compl. ¶¶ 2-4; Notice of Removal 1-2.) Plaintiffs argue, however,
that Defendants cannot remove this case under 28 U.S.C. § 1441(a)
because the amount in controversy does not exceed $75,000 as
2
required by 28 U.S.C. § 1332(a). (Pls.’ Mem. 2.) Plaintiffs did
not demand a specific amount in their complaint. (See Compl. ¶¶
1[a]–5[a].) But Defendants averred in their Notice of Removal that
the amount in controversy exceeds $75,000, as evidenced by the
mortgage’s
size
($279,000)
and
the
Property’s
current
value
($139,800). (Notice of Removal 2-3.)
II.
Discussion
The jurisdiction of federal courts is limited; “[i]t is to be
presumed that a cause lies outside this limited jurisdiction, and
the burden of establishing the contrary rests upon the party
asserting jurisdiction.” Kokkonen v. Guardian Life Ins. Co. of
Am., 511 U.S. 375, 377 (1994) (citations omitted). In situations
like this one – where removal is based on diversity and the
complaint fails to provide an amount in controversy, but the notice
of removal claims it exceeds $75,000 – “removal of the action is
proper . . . if the district court finds, by the preponderance of
the evidence, that the amount in controversy exceeds [$75,000].”
28 U.S.C. § 1446(c)(2)(B); see also Dart Cherokee Basin Operating
Co. v. Owens, 135 S. Ct. 547, 554 (2014). And when the relief
sought is declaratory or injunctive, “the amount in controversy is
measured by the value of the object of the litigation.” Hunt v.
Wash. State Apple Advert. Comm’n, 432 U.S. 333, 347 (1977).
The object of this litigation is not the Property at 176-178
Grove Street. At least not exactly. Cf. Bobola v. Wells Fargo Bank,
3
C.A. No. 14-14735-MLW, 2016 WL 4844039, at *3 (D. Mass. Sept. 13,
2016) (“It is reasonable to designate the amount in controversy as
the value of the mortgage where the Defendants’ mortgage interest
would
be
extinguished
if
the
Plaintiffs
were
ultimately
successful. In such a case, it is the property itself that is the
object of the litigation . . . .” (citation, alteration, and
quotation marks omitted)). The complaint does not demand that
Defendants’ interest in the Property be extinguished. See id. at
*4
(finding
amount
of
mortgage-loan
modification
for
which
mortgagor eligible was proper amount in controversy, where “the
relief requested in the Complaint, if granted, would not extinguish
[mortgagee]’s
interest
in
the
Property.”
(quotation
marks
omitted)). Nor does it ask the Court to prevent Defendants from
selling the Property at a foreclosure sale. Rather, it asks for
the Court to return the parties to the positions they occupied
before the sale – when Defendants, as mortgagee and note-holder,
held legal title to the Property and Plaintiffs, as mortgagors,
equitable title. See Lister v. Bank of Am., 790 F.3d 20, 25 (1st
Cir. 2015) (explaining that Rhode Island “mortgage law splits the
title to a property in two parts: the legal title, which becomes
the mortgagee’s and secures the underlying debt, and the equitable
title, which the mortgagor retains.” (alteration and quotation
marks omitted)); Milton Sav. Bank v. United States, 187 N.E.2d
379, 381 (Mass. 1963) (noting that in Massachusetts – a title4
theory jurisdiction like Rhode Island – “the mortgagor has merely
an equity of redemption accompanied by a right to possession[,
while t]he paramount title is in the mortgagee”).
Rather than the mortgage or the Property, then, the object of
this litigation is the latter’s equitable title. And the amount in
controversy is the value of this title at the time Plaintiffs filed
their complaint. See Spielman v. Genzyme Corp., 251 F.3d 1, 5 (1st
Cir. 2001) (“Courts determine whether a party has met the amountin-controversy requirement by looking to the circumstances at the
time the complaint is filed.” (quotation marks omitted)). In other
words, the amount in controversy is the difference between the
value of the Property with and without the mortgage attached to
it. See 14AA Charles Alan Wright & Arthur R. Miller, Federal
Practice and Procedure § 3702.5 (West 4th ed. 2018) (“If suit is
brought to quiet title to land . . . and the cloud affects the
entire title, then the value of the property . . . is the measure
of the amount in controversy. If the entire title is not in issue,
the amount in controversy is the difference in the value of the
land . . . with the cloud and its value with the cloud removed.”).
But see Pah v. JPMorgan Chase Bank, Civil Action No. 1:12–cv–4071–
JEC., 2014 WL 1683332, at *2 (N.D. Ga. Apr. 29, 2014) (finding
that where “plaintiff seeks an order rescinding the foreclosure
sale . . . the appropriate measure of the amount in controversy is
the value of the property at issue”). An analogous situation
5
obtains when a plaintiff seeks injunctive relief to invalidate a
leasehold
to
mineral
rights.
See,
e.g.,
A.C.
McKoy,
Inc.
v.
Schonwald, 341 F.2d 737, 739 (10th Cir. 1965). For example, in
A.C. McKoy, the court determined that the amount in controversy
was not the value of the mineral interest, but “the diminished
value
of
the
mineral
interest
burden
with
the
lease
or
the
increased value without the lease.” Id.
The Supreme Court applied a similar logic in McNutt v. Gen.
Motors Acceptance Corp. of Ind., 298 U.S. 178 (1936). There, a
company sought to enjoin the enforcement of a state regulation.
Id. at 179. The company asserted that the amount in controversy
was equal to the value of its business, much more than the
jurisdictional requirement, which was then $3,000. Id. at 180. The
Court rejected the company’s assertion, finding that “[t]he object
or right to be protected against unconstitutional interference is
the right to be free of that regulation.” Id. at 181. “The value
of that right,” the Court said, “may be measured by the loss, if
any, which would follow the enforcement of the rules prescribed.”
Id. Put otherwise, the amount in controversy was the difference
between
the
company’s
value
in
a
world
where
it
abided
the
challenged regulation versus one where it did not. And because the
company – the party seeking federal jurisdiction – had not provided
evidence to inform this calculation, the Court dismissed. Id. at
190.
6
The Ninth Circuit did the same in a recent foreclosure case.
See Corral v. Select Portfolio Servicing, Inc., 878 F.3d 770, 77576 (9th Cir. 2017). In Corral, homeowners sought to temporarily
stay a mortgage foreclosure sale pending review of their loanmodification application. Id. at 774. The court found that neither
the
original
amount
of
the
note,
nor
the
current
level
of
indebtedness, nor the value of the property represented the amount
in controversy. See id. at 776. These measures – applicable in
cases where “plaintiffs seek to enjoin foreclosure indefinitely as
part of an effort to quiet title to the property or rescind their
loan agreements” – were inapt in a case like Corral, the court
explained, where “even if Appellants[’] [lawsuit] were to succeed
. . . they would not be able to retain possession and ownership of
their Property without paying off their debt.” Id. All they might
have won is a few extra nights in their home as their application
was reviewed, and either denied before the property was foreclosed
upon, or accepted. Id. Therefore, the evidence the loan servicer
presented in its motion – the current amount of indebtedness – was
insufficient to support removal. Id. Needed, the court held, was
evidence showing the value of the object of the litigation – the
temporary injunction – which might include “the transactional
costs to the lender of delaying foreclosure or a fair rental value
of the property during the pendency of the injunction.” Id.; see
also Ballew v. Am.’s Servicing Co., No. 4:11–CV–030–A., 2011 WL
7
880135, at *3 (N.D. Tex. Mar. 14, 2011) (“[P]laintiff seeks to
temporarily delay foreclosure proceedings until the merits of this
lawsuit are decided. The value of such a delay is not the value of
the
property,
it
is
the
value
to
plaintiff
of
postponing
foreclosure until he can determine through this suit whether
defendants are entitled to foreclose.”); Sanders v. Homecomings
Fin., LLC, No. 2:08–CV–369–MEF., 2009 WL 1151868, at *3-4 (M.D.
Ala. Apr. 29, 2009) (finding amount in controversy not equal to
mortgage’s original value, but rather “a[t] the very most” to
mortgagee’s “equity in the home,” where mortgagee sought to enjoin
foreclosure sale).
The same reasoning requires remand here. Defendants have not
provided evidence of the amount in controversy. The value of the
mortgage and that of the Property are not what Plaintiffs would
win if their lawsuit were to succeed. What they would win – the
object of the litigation – is, essentially, equitable title to the
Property, something as to which Defendants have not attempted
appraisal. Defendants have thus failed to meet their burden to
prove
federal-court
jurisdiction
by
a
preponderance
of
the
evidence.
III. Conclusion
Plaintiffs’
Motion
to
Remand
(ECF
No.
8)
is
GRANTED.
Defendants’ Motion to Vacate Entry of Default (ECF No. 5) is DENIED
as moot, as is the parties’ Joint Motion to Rescind Foreclosure
8
(ECF No. 15). The parties may file the latter in state court,
which, if so inclined, can make quick work granting it.
IT IS SO ORDERED.
William E. Smith
Chief Judge
Date: June 18, 2018
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