Allan et al v. Federal National Mortgage Association et al

Filing 17

MEMORANDUM OPINION. See Opinion for complete details. Signed by District Judge Robert E. Payne on 10/24/2016. (ccol, )

IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF VIRGINIA
Richmond Division

WILLIAM S.

ALLAN,

et al.,

Plaintiffs,
Civil Action No.

V.

3:16CV215

ASSOCIATION,

R\

r

FEDERAL NATIONAL MORTGAGE

-nMl

et al..

OCT 25 2016
Defendants.

CLERK, U.S. OtSTniCT COURl
RICHMOND.VA

MEMORANDUM OPINION

This

REMAND

matter

is

(Docket No.

before

7).

the

Court

on

Plaintiffs'

For the reasons stated below.

MOTION

TO

Plaintiff's

MOTION TO REMAND will be granted.
BACKGROUND

On

J.

December

Allan

Mortgage

9,

2004,

("the Allans")

Plaintiffs

William S.

borrowed $168,400.00

Corporation and signed an

(Def.'s Notice of Removal,

Mortgage

associated promissory

Docket No.

Corporation,

on

1,

the

Removal

note

to

(State

1) .

American Home Mortgage

Federal
Court

National

Complaint,

Mortgage
Docket

same

Inc.,

day;

1-1,

f

as American

the

deed

was

(Def.'s Notice

Corporation

Association

No.

note.

1).The Allans granted a

recorded in the Circuit Court of Powhatan County.

of

Susan

from American Home

Deed of Trust to Mortgage Electronic Systems,
Home

Allan and

assigned the

("Fannie
12).

Mae").

Fannie

Mae

retained Green Tree Servicing,
LLC,

as

Green

servicer on the
Tree

Servicing

also known as Ditech Financial,

loan.

(State Court Complaint,

appointed

12).

Trustees

Commonwealth

f

LLC

("Commonwealth") as the Substitute Trustee on November 13, 2014.
(Def.'s

Notice

of

Removal

2).

Rosenberg

Associates,

LLC

("Rosenberg") represents Commonwealth.

(Def.'s Notice of Removal

2) .

foreclosure sale,

In 2014,

III,

LLC

Commonwealth initiated a

("JCM")

purchased

the

property.

(Def.'s

and JCM

Notice

of

Removal 2).

On November
Circuit

Court

Commonwealth,

9,

2015,

for
JCM,

the Allans

Powhatan

and

filed a

County

Rosenberg

Complaint

against

(collectively,

Fannie

Mem.").

Commonwealth,

diversity
Removal

JCM,

3-4).

January

are

Rosenberg

(Pl.'s

Fannie

Mae's

Virginia

are

Remand
counsel

residents,

Virginia

Mem.

1;

entered

("Pl.'s
and

corporations

for

Def.'s
an

Notice

of

appearance

on

2015, and service was effective on Fannie Mae as of

6,

Commonwealth,

Allans

and

purposes.

November 23,

Mem.

The

Mae,

"Defendants").

(Pl.'s Mem. in Supp. of Mtn. to Remand, Docket No. 8, 1)
Remand

in the

2016.
JCM,

(Pl.'s

Remand

and Rosenberg

Mem.

1).

filed demurrers.

Fannie

Mae,

(Pl.'s Remand

1-2).

The

sought

State

Court

Complaint

rescission of the

asserted

foreclosure

ten

claims.

Count

One

on the basis of Rosenberg

and Commonwealth's requirement that the purchaser pay Rosenberg

$445.00

for

violation
dealing.

review

of

of

questionable

the

Rosenberg

(State

rescission

of

Court

the

settlement

and

Commonwealth's

Complaint

foreclosure

$445.00

fee

documents,

SlSl

on

13-36) .

the

dissuaded

duty

against

Count

basis

buyers

allegedly

Two

that

who

selfsought

the

could

in

legally

tell

that

such legally questionable fee would leave the purchase open to a

legal challenge such as this suit.

39) .

Count

Allans'

Three

sought

deprivation

of

Complaint SISI 40-43) .

that

Commonwealth

trustee.

(State

compensatory
provisions

66).

Count

collective

Court

damages

Six

compensatory
the

not

of

their

properly

Complaint

against

deed of

sought

failure

use

damages

related

home.

(State

to

appointed

15

any

Court

Mae

the

Count

mortgage

Seven

documents.

sought

Court

based

time

(State

Court

compensatory damages

the

the

Allans

Fannie Mae

to notify the Allans of an opportunity to cure.

like Count Six,

73-75) .

compensatory

Count

Court

an

67-72).

failure

sought

(State

of

as required

Complaint

against

63-

Defendants'

Count Eight,

Seven,

foreclosure.

sought

certain

73-75).

11

the

of

related

Complaint

Court

Complaint

on

notify

Five

damages

Court

to

the

substitute

breach

for

(State

rescission
at

a

44-62).

Fannie

trust.

as

opportunity to cure by paying the principal in full,
by

to

37-

Count Four sought rescission on the grounds

was

of the

{State Court Complaint M

Complaint

for
11

sought rescission based on

Nine,

damages

like

against

Counts

Fannie

(State

Six

Mae

and

for

damages

related

to

the

foreclosure.

(State

Court

Complaint

81-83). Count Ten sought compensatory damages against Fannie Mae
for

implied

covenant

Court Complaint

SlSl

of

good

84-89) .

faith

The

and

fair

Defendants

dealing.

(State

filed demurrers

as

to

a l l causes of action.

On

March

13,

2016,

the

Opinion,

Circuit

Opinion"

(Letter

Docket

Opinion")

sustaining the demurrers

the counts.

(Pl.'s Remand Mem.

particular,

the

Count One,

Letter

Count Two,

No.
as

issued

3,

Ex.

to some,

a

C)

"Letter

("Letter
all,

of

Def.'s Notice of Remand 3).

2;

Opinion

Court

In

sustained

Count Three,

but not

the

Count Four,

demurrers
Count Five,

as

to

Count

Six, Count Eight,

and Count Ten.

(Letter Opinion 1-3). The Court

did

the

as

not

sustain

demurrers

to

Count

Seven

(noting

factual dispute about whether a

cure notice was sent)

Nine

2-3).

(same).

sustaining
leaving

(Letter

the

Opinion

demurrers

only claims

against

against

the

This

all

diverse

had

the

a

and Count

effect

of

non-diverse

defendants,

defendant,

Fannie Mae.

(Pl.'s Remand Mem. 2; Def.'s Notice of Removal 2-3).^
On April 13,
When

Fannie

Mae

2016,

Fannie Mae filed this notice of removal.

removed

the

case,

the

Circuit

^ The Letter Opinion dismissed Counts One,

Court

had

Two, Three,

not

Four,

Five, Six, Eight, and Ten, and did not dismiss Counts Seven and
Nine.
(Pl.'s
Remand
Mem.
2).
Counts
Seven
and
Nine
seek
compensatory damages from Fannie Mae for an alleged failure to
send a Notice of Acceleration to the Allans. (Def.'s Notice of
Removal 2).

entered

an

2) .

the

same

it

filed

At

Removal,
order,

order

formally

(Def.'s

effectuating
time

a

that

motion

adopting

the

Docket No.

May

(Docket No.

6,

2016,

7) .

the

Mae

this

Mtn.
4)

(Pl.'s

filed

Court

Circuit

Consented

Demurrers in Part,

opinion.

Fannie

in

Partially

On

its

Enter

("Def.'s Mtn.

Allans

filed

The Allans assert

their

Mem.

Notice

of

to

enter an

Letter

Opinion.

Order

Sustaining

to Enter")
Motion

four theories

the so-called involuntary-dismissal rule;

its

seeking

Court's

to

Remand

for

to

Remand.

remand:

(1)

(2)

diversity does not

yet exist because the Circuit Court has not

formally dismissed

Commonwealth

or

JCM;

fraudulently

joined;

(3)

and

JCM

(4)

if

and

Commonwealth

JCM

and

were

Commonwealth

not

were

fraudulently joined, then the thirty-day clock for Fannie Mae to
file for removal ran from the date of service,

not from the date

of the Letter Opinion.
LEGAL STANDARD

An action is properly removed to this Court for diversity
of citizenship if the amount in controversy exceeds $75,000 and
the

parties

1332(a)(1).

are

citizens

"Removal

of

of

different

civil

cases

to

States.

28

federal

court

infringement on state sovereignty." Adams v.
Inc.,

657

F.

Supp.

519,

^ "Partially consented,"

521

(E.D.

in this

Defendants consented to the motion,
(Def.'s Mtn. to Enter 1 n.l).
5

Va.

is

§
an

Aero Servs.

Int'l,

Therefore,

"[t]he

1987).

case,

U.S.C.

means

that

the other

but that the Allans did not.

burden

of

seeking

demonstrating

removal.'"

(4th Cir.2010)
29

F.3d

Barbour

v.

148,

151

(4th

Cir.

that

a

challenged

must

matter

in

Union,

with

594

'the

F.3d

party

315,

326

Columbia Organic Chems. Co.,

1994)).

federal

federal

demonstrate,

over the matter." Strawn v.

(4th Cir.

allege

2008) .

As

a

courts,

federal

result

of

unlike most

than

is

alleged

in

complaint."

federal
Mulcahey,

a

F.3d

required

192,

jurisdiction

court's

defendant

in

his

allege,

the

state

is

notice

required

removal,

to

However,

establish

Ellenburg
(4th

v.

Cir.

the burden of

a

530

"this burden is no

federal

jurisdiction

Spartan

Motors

2008).

doubtful,

to

"when

jurisdiction is proper." Strawn,

200

is

when

530 F.3d 293,

only

of

and

jurisdiction

LLC,

the removing party bear[s]

greater

519

federal

(emphasis in original).

a

must

AT & T Mobility,

jurisdiction

demonstrating that removal
F.3d at 297

court

the

Although

removal is challenged,

Inc.,

resides

are courts of limited jurisdiction," "a party seeking to

adjudicate

296

Int'l

(quoting Mulcahey v.

"undergirding principle
courts,

jurisdiction

Chassis,

Nevertheless,

remand

is

as

"if

necessary."

29 F.3d at 151.

To establish that a defendant has been fraudulently joined,
the

removing

possibility

party

that

cause of action

or

that

"there

the

must

plaintiff

against

has

prove

the

been

either

would

in-state

outright

be

that

"there

able

to

defendant

in

fraud

in

the

is

establish

no
a

state court"

plaintiff's

pleading

of

jurisdictional

Corp.,

6

F.3d

Sites,

886 F.

229,

232

Supp.

facts."

(4th

1300,

Cir.

1302

Marshall
1993);

(E.D.

v.

see

Va.

Manville

also

1995).

Sales

Beaudoin

Where,

v.

as here,

the removing party argues that there is no possibility that the
plaintiff will be able to state a claim against the non-diverse
defendant,

[t]he
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.
Marshall,

6

When
bound

by

F.3d at 232-33.

fraudulent
the

joinder

allegations

of

'consider the entire record,
by

any means

Group

available."'

W Television,

(citation omitted).
deposition
affidavits
allegations

Inc.,

deposition

contained

Miller Brewing Co.,

at

the

issue,

"the

pleadings,

court

but

may

is

not

instead

and determine the basis of joinder

AIDS
903

Counseling
F.2d

1000,

& Testing Centers
1004

(4th

Cir.

v.

1990)

"[T]he defendants may submit affidavits and

transcripts;
and

is

in

and

. . .

the

transcripts
the

verified

663 F.2d 545,

549

plaintiff
along

with

complaint."

(5th Cir.

1981)

may
the
B. ,

submit
factual
Inc.

v.

ANALYSIS

A.

The Letter Opinion Is Sufficient to Formally Dismiss
Non-Diverse Defendants for the Purposes of Removal
The Allans

remained

argue

before

the

that

^'[b]ecause

Circuit

Court

the

JCM ... and Commonwealth ...

at

the

time

of

removal,"

because the Letter Opinion had not been the subject of a formal

order,

"the parties before this Court lack complete diversity."

(Pl.'s Remand Mem. 7). The Letter Opinion is unquestionably not
an order,

given that

consistent

order.

it

requests

(Letter Opinion

that
4) .

the

parties

However,

prepare

a

the

lack of an

order formally implementing the Letter Opinion an

independent

bar to removal.

The removal statute states that

if the case stated by the initial pleading
is not removable, a notice of removal may be
filed within 30 days after receipt by the
defendant
... of
a
copy
of
an
amended
pleading,
which

it

case

is

motion,
may

order or other paper from

first

one

be

which

ascertained
is

or

that

has

the

become

removable.

28 U.S.C. § 1446(b)(3)

(emphasis added). Opinions, even when no

order is entered effectuating the opinion, can start the thirtyday clock because such opinions are "other papers" from which a
defendant

removable.

119

F.

may

first

E.g.,

Supp.

ascertain

that

the

case

Link Telecommunications,

2d 536,

543

(D. Md.

2000)

is

Inc.

or

v.

has

become

Sapperstein,

(state court judge's

opinion was "other paper" for purposes of 30-day deadline),
8

If

opinions could start the clock on a thirty-day deadline, but not
effectively

defendants

remove

could

non-diverse

barred

be

defendants,

exercising

from

then

diverse

their

statutory

removal rights.

The fact that no order was entered effectuating the Letter

Opinion
filed

within

its

thirty-days,

Notice

of

and

Removal

that

without

Fannie
the

Mae

benefit

accordingly
of

an

order

effectuating the Letter Opinion, is not a bar to removal.
B.

The So-Called Voluntary-Involuntary Rule Bars Removal

Notwithstanding

the

general

rule

that

diversity cases may

be removed to federal court,
[w]hen

the

dismissal

of

all

non-diverse

defendants results from something other than
the voluntary action of the plaintiff,
a
federal court cannot exercise jurisdiction
under the so-called "voluntary-involuntary"
rule, and removal is not proper.

Riverdale Baptist Church v.
943,

945

Co.,

935

(D.Md.

2004}

F.2d 57,

Nemours & Co.,

against

thwarting

a

is

the

a

on Grubb
1991);

1166

non-diverse

removal,

2d at 946

(4th Cir.

joinder,

voluntary/involuntary
Supp.

(relying

863 F.3d 1162,

Fraudulent

claim

60

Certainteed Corp.,
v.

(4th Cir.

statement

Riverdale

(relying on Mayes v.

Supp.
Mut.

E.I.

2d

Ins.

DuPont d

1988)).

of

defendant

F.

Donegal

Higgins v.

a

non-meritorious

with

"well-established

rule."

339

the

exception

Baptist

Rapoport,

effect

Church,

to
339

198 F.3d 457,

of

the
F.
461

n.9)

(4th

1999)).

party

removing

Cir.

"must

possibility

that

the

of

establish

establish
plaintiff

cause of action against

or (2)

To

fraudulent

either
be

there

able

to

in-state defendant

the

would

(1)

joinder,

in

the

is

no

establish

a

state court;

there has been outright fraud in the plaintiff's pleading

jurisdictional

Supp.2d at

947

facts."

Riverdale

(relying on Mayes,

does not allege fraud;

form of fraudulent

Baptist

Church,

198 F.3d at 464).

349

F.

Fannie Mae

the Court therefore focuses on the first

joinder:

would be able to establish a

"no possibility that the plaintiff
cause of action."

The district court in Riverdale Baptist Church performed a

detailed

and

compelling

possibility" approach.

at

947-52.

analysis

of

the

"lineage"

Riverdale Baptist Church,

In the original context,

of

947 F.

the
Supp.

"no
2d

"no possibility" required a

defendant to show that "no factual basis existed for any honest

belief

on

the

liability."

Id.

Company,

308

U.S.

part
at

(1964))

949

F.2d

of

the

948

plaintiff

(relying

474,

478

(5th

ground"

or

a

liability

suffices

to

defeat

Morris

v.

E.I.

1934);

Phillips v.

(E.D. Va.

Cir.

Parks

there

was

joint

New

York

Times

v.

1962),

cert,

denied,

376

(emphasis added). Other courts have said that a

"colorable

822

on

that

Du

Font

BJ's

"glimmer

De

a

Nemours

of

hope"

fraudulent
& Co.,

Wholesale Club,

2008). There is,

68

for

pursuing

joinder

assertion.

F.2d 788

Inc.,

591

joint

F.

(8th Cir.

Supp.

2d

in other words, an extremely high
10

burden

on

a

defendant

to

show

not

dismissed a non-diverse defendant,

just

that

a

state

court

but that plaintiff could not

have had an honest belief that it could bring suit against the
non-diverse defendant.

The Riverdale Baptist Church court noted that its extremely-

high

bar

is

appropriate

voluntary-involuntary

given

rule:

the

animating

preserving

a

principle

plaintiff's

state appellate procedure.
[0]ne
of
the
reasons
underlying
voluntary/involuntary
distinction
is

the
the
practical one of allowing the state court to
resolve

the

defendant:

status

'In

of

most

of

the
the

non-diverse
instances

in

which the Supreme Court has employed the
voluntary-involuntary
rule
[to
compel
remand], it appears that the elimination of
the

resident

defendants

was

not

final

at

the

time the issue of the propriety of removal
was considered because the state appellate
process

as

to

those

defendants

was

complete .... As another court explained:
The
expedient
of
removal
to
a
federal

court

cut

such

off

cannot

a

be

allowed

fundamental

right

to

of

judicial
review.
It
goes
without
saying that if the Supreme Court of
Alabama should ultimately enter an
order setting aside [the lower court
ruling] ... there would be no complete
diversity
in
this
case.
The
compelling concepts ... are (1) that
the diversity must exist when the
suit

is

filed

or

thereafter

be

created by the voluntary act of the
plaintiff and not by the plaintiff's
involuntary act or by the act of the
state court;
and
(2)
that federal
courts
cannot
trespass
upon
the

11

not

of

access

the
to

orderly
state

appellate

processes

of

the

court,

Harrell v.

Reynolds Metals Co.,

599 F.

Supp.

966, 969-70 (N.D. Ala. 1985)
[T]he fact
that the appellate process has not been
exhausted ... precludes removal.

Riverdale Baptist Church, 349 F. Supp. 2d at 950-51.^
The Court finds the analysis in Riverdale Baptist Church -

the

limited origins

need

to

system

provide
-

of

effective

persuasive

joinder,

Fannie

the

and

Mae

must

"no possibility"
judicial

compelling.
establish

have held any "honest belief"
claim

against

Fannie

Mae

review

and

To

approach
through

the

establish

that

the

and the
state

fraudulent

Allans

could

that they could pursue a
Commonwealth.

The

fact

not

joint

that

the

state court sustained the demurrers against Commonwealth is not

dispositive in establishing fraudulent joinder.
In

its

Notice

of

Removal,

defendants

that

because there is no possibility that

recover

from

these

(Notice of Removal,
misunderstands

now

stated

and

may

are

Mae

Commonwealth,

...

Rosenberg

Fannie

defendants"

Docket No.

fraudulent

1,

joinder.

fraudulently

after

f
It

the

28).
is

"JCM,

joined

Plaintiffs

Letter

Opinion.

Fannie Mae's argument
insufficient

that

the

Allans cannot recover after the state court issued an opinion;
for

fraudulent

^ The Allans

joinder,

note

that

a

voluntary action of the Allans

they retain the

right

to move

(such

for

reconsideration and the right ot prosecute an appeal to the
Virginia Supreme Court. (Pl.'s Remand Reply, Docket No. 14, 7).
12

as

the Allans'

Commonwealth

recover

state

without

against

court
an

complaint

"honest

Commonwealth}

alleging

belief"

must

that

have

claims

the

created

against

Allans

the

could

fraudulent

joinder.

Although

opinion

and

Fannie

Mae

presumably

has

the

briefly

opinion

explained

of

the

why,

its

court,''

state

in

the

Allans could not state a claim under Virginia law {Def.'s 0pp.
to Pl.'s Mtn.

to Remand,

presented any argument,

the Allans

could not

Docket No.

13, 5-8),

much

a

have

less

Fannie Mae has not

compelling

any honest

argument,

belief that

that

they had a

claim against the non-diverse Defendants. In so failing,

Fannie

Mae has not met its burden of showing that removal jurisdiction
is proper.
Mulcahey,

If

Strawn,

530 F.3d at 297; Ellenburq,

519 F.3d at 200;

29 F.3d at 151.

the

claims

against

the

non-diverse

defendants

were

so

obviously deficient that the Allans could not have enjoyed any
honest belief that they could prosecute a claim against the nondiverse

defendants,

removed

the

then

case

within

Defendants

pled

contemplates

exactly such a

4

court's

The

state

Defendants

thirty

fraudulent

could

days

of

joinder.
procedure.

42
E.g.,

Letter Opinion does

explanations for that court's decision,

not

and

should

service
U.S.C.
Ross

v.

in

have

which
1446(b)

Lee,

No.

present detailed

and this Court does not

have access to the arguments the parties presented in the state
court.

13

3:15CV566,

2016

WL

521529

(E.D.

Va.

Feb.

5,

2016)

(removing

within thirty days of service and stating fraudulent joinder of
non-diverse
action,

defendant).

and the Court

If

Fannie

Mae

had

taken

such

had sustained the non-diverse

form of

the

federal

prompt

Defendants'

demurrers

(in the

equivalent,

a

motion

to

dismiss),

then the Allans would have a path for appeal to the

Fourth Circuit and the Supreme Court.
By

not

demurrers,

removing

however,

the

case

before

resolution

of

the

Fannie Mae has created exactly the type of

situation that the voluntary-involuntary rule intends to protect
against.
Opinion,

court

also
lower

If

the

Court

opinion

by a

foreclosed
federal

Cir.

federal

state

from

court

1997)

courts

state-court

decisions

removal

and

adopts

the

Letter

then the Allans are foreclosed from review of the state

appeals

review of

E.g.,

("Under

generally

decisions;

lies

court

because

state court decisions.

(4th

permits

lower

federal

not

courts

Moore,

with

have

The Allans

court

opinion
cannot

doctrine,

jurisdiction

jurisdiction

superior

to

are

by a
review

129 F.3d 728,

Rooker-Feldman

rather,

exclusively

state

Plyler v.

the
do

the

court.

731

lower
review

to

review

such

state

courts

and,

ultimately, the United States Supreme Court").
In conclusion,

if the Allans'

claims were so deficient that

they could have no honest belief that they might recover against
the non-diverse

Defendants,

then the
14

Defendants ought to have

removed under
Defendants'

42

U.S.C.

demurrers,

bar

of

the

and the

state

service.

sustaining of some though not all of the Defendants'
the

so,

of

subsequent

raised

to do

within thirty days
court's

has

failure

1446(b)

voluntary-involuntary

rule

and

accordingly prohibits removal.
CONCLUSION

For

the

reasons

stated above.

Plaintiff's MOTION

TO

REMAND

will be granted.
I t is

so ORDERED.

/s/

Robert E.

Payne

Senior United States District Judge

Richmond, Virginia
Date:
October
, 2016

15