Chase Bank USA, N.A. v. City of Cleveland

• Decision Date: 26 September 2012
• Docket Number: Nos. 10–4115,10–4116.,s. 10–4115
• Citation: 695 F.3d 548
• Parties: CHASE BANK USA, N.A., JPMorgan Chase Bank, N.A., JPMorgan Mortgage Acquisition Corp., and J.P. Morgan Securities, Inc., Plaintiffs–Appellants/Cross–Appellees, v. CITY OF CLEVELAND, Defendant–Appellee/Cross–Appellant.
• Court: U.S. Court of Appeals — Sixth Circuit

695 F.3d 548

CHASE BANK USA, N.A., JPMorgan Chase Bank, N.A., JPMorgan Mortgage Acquisition Corp., and J.P. Morgan Securities, Inc., Plaintiffs–Appellants/Cross–Appellees,

v.CITY OF CLEVELAND, Defendant–Appellee/Cross–Appellant.

Nos. 10–4115, 10–4116.

United States Court of Appeals, Sixth Circuit.

Decided and Filed: Sept. 26, 2012.

ON BRIEF:Isaac Schulz, Michael N. Ungar, Richik Sarkar, Ulmer & Berne, LLP, Cleveland, Ohio, for Appellants/Cross–Appellees. Joshua R. Cohen, Cohen Rosenthal & Kramer, LLP, Cleveland, Ohio, for Appellees/Cross–Appellants.

Before: MOORE and GRIFFIN, Circuit Judges, and QUIST, District Judge.^*

OPINION

KAREN NELSON MOORE, Circuit Judge.

The foreclosure crisis that swept the nation in the latter half of the past decade hit Cleveland particularly hard. It also led to this litigation. Though this case has as its background such weighty factual topics as subprime-mortgage lending, foreclosures, and the precarious economic state of the post-industrial Midwest, the issue at stake in this appeal is solely procedural. Our task is to determine whether the district court had subject-matter jurisdiction over a suit by several financial institutions seeking declaratory and injunctive relief from two other lawsuits filed by the City of Cleveland. We conclude that it did. Because the district court nonetheless dismissed the suit sua sponte for failure to state a claim without notice to the parties, we REVERSE the judgment of the district court and REMAND for further proceedings.

I. BACKGROUND

The City of Cleveland has seen a record number of home foreclosures in the past decade. Between 2000 and 2008, Cuyahoga County, Ohio, where Cleveland is located, recorded approximately 80,000 foreclosures. Scott Simon, In Cleveland, Foreclosures Decimate Neighborhoods, Nat'l Pub. Radio, May 24, 2008. In 2007, County Treasurer Jim Rokakis described the city as “the epicenter of the mortgage meltdown in America.” Thomas Ott & Susan Vinella, Home Loan Foreclosures on the Rise in Cuyahoga, The Plain Dealer, July 4, 2007, at B1. Against this backdrop came the three lawsuits relevant to this case.

A. City of Cleveland v. Ameriquest Mortgage Securities, Inc. (City of Cleveland I)

In January 2008, Cleveland brought suit against twenty-one financial institutions in Ohio state court, alleging that the defendants' actions in the subprime-mortgage industry constituted a public nuisance under Ohio common law. By securitizing subprime mortgages and later foreclosing on the houses purchased through such mortgages, the defendants allegedly contributed to a financial crisis in the city that included significant declines in property values, a shrinking tax base, and an increase in criminal activity. Cleveland sought to recover for the costs it incurred in monitoring, maintaining, or demolishing foreclosed properties and for decreased tax revenues. The defendants removed the case to federal court on diversity grounds. After denying Cleveland's motions to remand and to amend its complaint by adding JPMorgan Chase Bank, N.A., a non-diverse party, the district court granted the defendants' motion to dismiss on the grounds that the city's suit was preempted by state law and was barred by the economic-loss doctrine, and, alternatively, that the complaint failed to demonstrate that the defendants' actions unreasonably interfered with a public right or were the proximate cause of the alleged harm. City of Cleveland v. Ameriquest Mortgage Sec., Inc., 621 F.Supp.2d 513, 516–17 (N.D.Ohio 2009). We affirmed on proximate-cause grounds. 615 F.3d 496, 502–06 (6th Cir.2010), cert. denied,––– U.S. ––––, 131 S.Ct. 1685, 179 L.Ed.2d 618 (2011).

B. City of Cleveland v. JP Morgan Chase Bank, N.A. (City of Cleveland II)

In August 2008, shortly after the district court denied Cleveland's motion to remand in City of Cleveland I, Cleveland filed a second suit in Ohio state court against twenty-eight financial institutions, including the non-diverse JPMorgan Chase Bank, N.A. In addition to pleading another public-nuisance claim, Cleveland alleged that the defendants had violated the Ohio Corrupt Activities Act (“OCAA”), the state RICO analogue, by inaccurately claiming title to mortgages and promissory notes in foreclosure proceedings in violation of Ohio Revised Code § 2921.12(A). SeeOhio Rev.Code § 2923.32. Cleveland also sought to recover under Ohio Revised Code § 715.261 for costs incurred maintaining or demolishing foreclosed houses.

C. Chase Bank, USA, N.A. v. City of Cleveland (Chase Bank)

In February 2008, while City of Cleveland I was pending, Plaintiffs–Appellants Chase Bank, USA, N.A., JPMorgan Chase Bank, N.A., JPMorgan Mortgage Acquisition Corp., and J.P. Morgan Securities, Inc. (collectively, “Chase Bank”) brought the suit that is currently before us. Chase Bank sued Cleveland in federal district court, seeking a declaratory judgment that Cleveland's public-nuisance claim in City of Cleveland I was preempted by the National Bank Act and requesting an injunction against that suit. After Cleveland filed City of Cleveland II, Chase Bank amended its complaint to request declaratory relief and an injunction against both of Cleveland's lawsuits. ¹ Cleveland moved to dismiss Chase Bank's suit for lack of subject-matter jurisdiction under Federal Rule of Civil Procedure 12(b)(1), arguing that the suit did not raise a federal question. The district court ruled in August 2010, suggesting that it lacked subject-matter jurisdiction to issue declaratory relief, but had jurisdiction to issue an injunction. Despite the latter ruling, the court dismissed Chase Bank's suit without prejudice for failure to show irreparable harm. Because Chase Bank “cannot, at this time, demonstrate irreparable harm from a failure of this Court to grant injunctive relief,” the district court held, Chase Bank's “request to enjoin the pending lawsuits is not yet ripe, and must be dismissed without prejudice.” R.38 at 17–18 (Dist. Ct. Op.) (Page ID # 508–09).

Chase Bank timely appealed, contending that the district court had subject-matter jurisdiction to issue both declaratory and injunctive relief pursuant to either 28 U.S.C. § 1331 or 28 U.S.C. § 1343(a)(3) (the jurisdictional counterpart to 42 U.S.C. § 1983). Cleveland cross-appealed, arguing that the district court lacked subject-matter jurisdiction to issue either type of relief. Cleveland alternatively argues that, even if the district court had subject-matter jurisdiction over both the declaratory and injunctive claims, the dismissal can be affirmed on three non-jurisdictional grounds: (1) district courts have discretion whether to hear declaratory-judgment actions, (2) enjoining the state-court proceedings in City of Cleveland II would violate the Anti–Injunction Act, or (3) Younger abstention was warranted.

D. Recent Developments

Since this case left the district court, several developments have occurred in both City of Cleveland I and City of Cleveland II.² In City of Cleveland II, the Cuyahoga County Court of Common Pleas dismissed Cleveland's public-nuisance and OCAA claims, but denied the defendants' motion to dismiss as to Cleveland's claim under Ohio Revised Code § 715.261. City of Cleveland v. JP Morgan Chase Bank, N.A., No. CV–08–668608 (Cuyahoga Cnty.Ct.Com.Pl. Nov. 23, 2011). Cleveland voluntarily dismissed its § 715.261 claim and appealed the trial court's dismissal of the public-nuisance and OCAA claims. That appeal is currently pending in the Court of Appeals of Ohio, Eighth Appellate District.

In addition, the United States Supreme Court denied Cleveland's petition for a writ of certiorari in City of Cleveland I.City of Cleveland v. Ameriquest Mortgage Sec., Inc., ––– U.S. ––––, 131 S.Ct. 1685, 179 L.Ed.2d 618 (2011). Accordingly, Chase Bank's request for injunctive and declaratory relief regarding City of Cleveland I is now moot. All that remains of the suits in which Cleveland is the plaintiff is City of Cleveland II. Because Chase Bank, USA, N.A. and JPMorgan Mortgage Acquisition Corp. are not parties to City of Cleveland II, we dismiss their claims as moot.

II. ANALYSIS

“It is a principle of first importance that the federal courts are tribunals of limited subject matter jurisdiction,” and can adjudicate only those claims that “(1) are within the judicial power of the United States, as defined in the Constitution, and (2) that have been entrusted to them by a jurisdictional grant by Congress.” 13 Charles Alan Wright, Arthur Miller, Edward Cooper & Richard Freer, Federal Practice & Procedure § 3522 at 100 (3d ed. 2008) (hereinafter, Wright & Miller, Federal Practice & Procedure). Accordingly, a federal court must dismiss any claim for which it lacks jurisdiction without addressing the merits. We review de novo a district court's grant of a motion to dismiss for lack of subject-matter jurisdiction based on a facial attack. Carrier Corp. v. Outokumpu Oyj, 673 F.3d 430, 440 (6th Cir.2012). We likewise review de novo a dismissal for failure to state a claim. Id. at 444.

A. Subject–Matter Jurisdiction³

Federal district courts have subject-matter jurisdiction over “all civil actionsarising under the Constitution, laws, or treaties of the United States.” 28 U.S.C. § 1331. In order to trigger federal-question jurisdiction under § 1331, a lawsuit must satisfy the well-pleaded complaint rule. Under this rule, a federal question must appear on the face of the complaint rather than as part of a defense, even if a federal-law defense is anticipated. In the declaratory-judgment context, whether a federal question exists is determined by reference to a hypothetical non-declaratory suit (i.e., a suit for coercive relief) between the same parties; if a federal question would appear in the complaint in this hypothetical suit, federal jurisdiction exists over the declaratory-judgment action. In cases in which the plaintiff seeks a declaratory judgment that he would have a valid defense to an anticipated...