Boyd v. Phoenix Funding Corp.

• Decision Date: 28 April 2004
• Docket Number: No. 03-2352.,No. 03-1970.,03-1970.,03-2352.
• Citation: 366 F.3d 524
• Parties: Shirley BOYD, Plaintiff-Appellant, Cross-Appellee, v. PHOENIX FUNDING CORPORATION, North American Mortgage Company, and Linda Orr, Defendants-Appellees, v. Residential Funding Corporation and Bank One, N.A., Defendants-Appellees, Cross-Appellants.
• Court: U.S. Court of Appeals — Seventh Circuit

366 F.3d 524

Shirley BOYD, Plaintiff-Appellant, Cross-Appellee, v. PHOENIX FUNDING CORPORATION, North American Mortgage Company, and Linda Orr, Defendants-Appellees, v. Residential Funding Corporation and Bank One, N.A., Defendants-Appellees, Cross-Appellants.

No. 03-1970.

No. 03-2352.

United States Court of Appeals, Seventh Circuit.

Argued October 30, 2003.

Decided April 28, 2004.

Phillip H. Hamilton (Argued), Farrell, Hunter, Hamilton & Julian, Godfrey, IL, for Plaintiff-Appellant, Cross-Appellee.

David Antognoli (Argued), Hopkins Goldenberg, Edwardsville, IL, Irene C. Freidel, Kirkpatrick & Lockhart, Boston, MA, Craig A. Varga (Argued), Varga, Berger, Ledsky, Hayes & Casey, Chicago, IL, P.K. Johnson, Jr., Johnson & Johnson, Belleville, IL, for Defendants-Appellees.

Scott D. Bjorseth, Hoagland, Fitzgerald, Smith & Pranaitis, Alton, IL, for Defendants-Appellants.

Before RIPPLE, MANION, and DIANE P. WOOD, Circuit Judges.

DIANE P. WOOD, Circuit Judge.

In a misguided attempt to minimize her income tax liability, Shirley Boyd decided to mortgage two rental properties she owned in Alton, Illinois. After spending the proceeds on various personal expenses, Boyd defaulted on her payments and decided that she had been the victim of a predatory lending scheme. She filed suit in Illinois state court alleging federal truth-in-lending violations, as well as state law claims, against her mortgage brokers, the original lender, and an entity that she believed had subsequently been assigned the loans.

Despite the presence of federal claims, none of the defendants removed the case to federal court within thirty days of service, as required by the federal removal statute. Approximately ten months later in the midst of litigation, Boyd's loans were assigned to yet another entity, which immediately removed the case to federal court once it was named as a defendant. The case remained in federal court for the next year and a half. After the district court dismissed all of her federal claims and remanded the remaining state law claims, Boyd filed this appeal. For the reasons discussed below, we reverse and remand to the district court for development of the record regarding the propriety of removal.

I

The story of this case centers around rental properties that Boyd owned, located at 926-928 Washington Avenue and 2102 Rockwell in Alton, Illinois. After deciding that she wanted to sell the properties, Boyd was advised by Linda Orr, a mortgage broker, to take out loans using the property as collateral. Boyd mistakenly believed that mortgaging the properties would reduce her tax liability in that when she sold the two properties, presumably for the exact amount she had borrowed, she could pay off the loans with the proceeds of the sale. Boyd thought that this meant that she would realize no income on the transaction (because the amount of the loans would equal what she obtained in the sale) and thus that she would not be obligated to pay any capital gains taxes. The tax laws, of course, do not work this way, but even independently of the tax laws, things did not work out as she had hoped. She experienced difficulties selling the properties and eventually defaulted on her loans. Deciding that she had been taken, Boyd decided to sue.

On December 12, 2000, Boyd filed a six-count complaint in the Circuit Court of Madison County, Illinois, naming four defendants: Orr, the mortgage broker who had advised her of the supposed tax scheme; Phoenix Funding Corporation ("Phoenix"), a mortgage brokerage firm Orr had recommended that had assisted in processing Boyd's loan applications; North American Mortgage Company ("North American"), the original lender, which had extended her two loans — one in the amount of $44,000 for the Rockwell property, and a second in the amount of $48,400 for the Washington property; and Homecomings Financial Networks, Inc. ("Homecomings"), which Boyd alleged had taken an assignment of "the two loans which are the subject of this litigation." Complaint at ¶ 4. According to Boyd's original complaint, "[a]fter the closing of the loans with North American Mortgage Company, North American Mortgage Company assigned the loans to Homecomings Financial Network." Id. at ¶ 15. Boyd alleged that Phoenix, North American, and Homecomings had violated the Truth in Lending Act ("TILA"), 15 U.S.C. §§ 1601 et seq., by failing to make the required disclosures at the time of the credit transactions. None of these defendants elected to remove to federal court within thirty days of service, as they might have done under 28 U.S.C. §§ 1441 and 1446(b).

Eventually, of course, the case reached the federal district court, and from there, this court. Because the process by which that happened is complex, and because it may have an effect on federal jurisdiction in this case, we must retrace those steps as well as possible before considering anything further. To make a long story short, there is a serious question whether the party that removed this case to federal court was entitled to do so at the time when it acted. If so, then the removal was proper; but if it was too late, the district court should have remanded the entire case to the state court from which it came. The details are somewhat tedious, but they are essential for an understanding of the problem we must address.

We begin with the state court proceedings, which unfortunately are not as clear as one could wish. Our ability to assess what happened there is hampered by the haphazard condition of the record, which included numerous undated filings and is missing some pleadings altogether. Working with the record we have, it is plain that Homecomings actively participated in the litigation after it was named in the December 2000 complaint. On February 15, 2001, the Chicago-based law firm of Kropik, Papuga & Shaw entered an appearance on behalf of Homecomings. On March 23, 2001, Homecomings filed a motion to strike and dismiss portions of Boyd's original complaint. In this pleading, Homecomings stated that Boyd believed it to be the "assignee of the subject loan[s]." Homecomings attacked the merits of Boyd's TILA claim by arguing, in part, that the complaint did not allege any facts to support the conclusion that the loans were subject to TILA disclosures. Shortly after this pleading was filed, another attorney named Scott Bjorseth apparently entered the case on behalf of Homecomings; in any event his name appeared on several court orders as Homecomings's representative. Since Bjorseth has an address in Alton, Illinois, he may have been acting as Homecomings's local counsel. If Bjorseth entered a formal appearance on behalf of Homecomings, it is not in the record.

By March 2001, the state court had issued discovery-related orders predicated on Boyd's original complaint. Within the next four months, however, the court granted Boyd leave to amend her complaint three times. Without the benefit of date stamps, we cannot be certain, but it appears that Boyd filed an Amended Complaint on or around May 1, 2001, a Second Amended Complaint on or around July 3, 2001, and a Third Amended Complaint on or around July 20, 2001. In each of these versions, Boyd expanded the types of claims against the original four defendants, but she did not name any new defendants.

Then, on August 20, 2001, the proceedings took a curious turn. A new party appeared in the litigation, seemingly out of the blue. Bank One, N.A. ("Bank One"), filed a complaint against Boyd seeking to foreclose on the loan secured by the Rockwell property. The complaint alleged that Bank One was the holder and owner of the Rockwell note. Two aspects of this complaint are important to high-light. First, the complaint fails to specify when and where the assignment from North American to Bank One was recorded, if at all. This missing information is noteworthy because the first paragraph of Bank One's complaint care-fully provides the details of the transaction between Boyd and North American, stating: "On August 2, 2000, Shirley A. Boyd executed and delivered a note payable to the order of the North American Mortgage Company ... which was filed for record in the Recorder's Office of Madison County, Illinois, on October 24, 2000 in Book 440 at Page 3672 as Roll and Frame 2548-0961 thereby conveying to the plaintiff the property...." The second unusual feature of this complaint is that it was filed on behalf of Bank One by the law firm of Kropik, Papuga & Shaw, Homecomings's attorney of record.

About a month later, the unfolding events became even more bizarre. Within a time span of two days (September 27-28, 2001), Bank One assigned both of Boyd's loans to a new entity named Residential Funding Corporation ("Residential"), Homecomings suddenly decided that it had never been an assignee at all, and Bank One (despite the fact that it had assigned the loans to Residential just the previous day) filed a foreclosure action on the Washington property, again using the services of Homecomings's attorneys. On September 28, 2001, Kropik, Papuga & Shaw filed three pleadings, one on behalf of Bank One and two on behalf of Homecomings. The complaint filed on behalf of Bank One sought to foreclose on the Washington property. Again, it carefully listed the details of the transaction between Boyd and North American with respect to the Washington property, but failed to indicate if and when the assignment from North American to Bank One was recorded.

The first motion that Kropik, Papuga & Shaw filed on behalf of Homecomings attacked the merits of Boyd's Third Amended Complaint, urging the court to dismiss the common law rescission remedies that Boyd requested. The second motion announced, quite remarkably, that Homecomings was in fact never the assignee of Boyd's loans (despite its earlier active participation in the litigation). In this document, Homecomings informed the court that Boyd's loans had been assigned to Residential by Bank...