Cruz v. Bank of New York Mellon

• Decision Date: 10 July 2012
• Docket Number: Case No.: 12-CV-00846-LHK
• Parties: MANUEL CRUZ, an individual, Plaintiff, v. THE BANK OF NEW YORK MELLON FKA THE BANK OF NEW YORK, AS TRUSTEE FOR THE CERTIFICATEHOLDERS OF THE CWALT, INC., ALTERNATIVE LOAN TRUST 2006-AO21; MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 2006-OA21; BANK OF AMERICA, N.A.; MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC.; BAYTEK MORTGAGE INC.; HERMAN GONZALES; RECONTRUST COMPANY, N.A.; and DOES 1 through 20, inclusive, Defendants.
• Court: U.S. District Court — Northern District of California

MANUEL CRUZ, an individual, Plaintiff,

v.THE BANK OF NEW YORK MELLON FKA THE BANK OF NEW YORK, AS TRUSTEE FOR THE CERTIFICATEHOLDERS OF THE CWALT, INC.,

ALTERNATIVE LOAN TRUST 2006-AO21; MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 2006-OA21;

BANK OF AMERICA, N.A.; MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC.;

BAYTEK MORTGAGE INC.; HERMAN GONZALES; RECONTRUST COMPANY, N.A.;

and DOES 1 through 20, inclusive, Defendants.

Case No.: 12-CV-00846-LHK

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA SAN JOSE DIVISION

Dated: July 10, 2012

ORDER DENYING MOTION TO

STRIKE; DENYING MOTION TO

DISMISS; REMANDING ACTION TO

STATE COURT

Before the Court is Defendants'¹ motion to dismiss Plaintiff's complaint. ECF No. 13. Also before the Court is Defendants' motion to strike Plaintiff's first amended complaint. ECF No. 22. Pursuant to Civil Local Rule 7-1(b), the Court finds these two motions appropriate for determination without oral argument. Accordingly, the July 12, 2012 hearing on the motions is hereby VACATED. For the following reasons, Defendants' motion to strike is DENIED, andDefendants' motion to dismiss is DENIED as moot. Additionally, as explained below, this case is REMANDED to state court because this Court lacks subject matter jurisdiction.

I. FACTUAL AND PROCEDURAL BACKGROUND

This action arises out of a residential mortgage transaction.² On October 25, 2006, Plaintiff obtained a $1,000,000.00 loan from First Magnus Financial Corporation (FMFC) to purchase his home located at 20415 Hunters Hill Road, San Jose, California 95120. Compl. ¶¶ 2, 19, 69; see also RJN Ex. 1. Plaintiff alleges that FMFC, Baytek Mortgage, Inc. ("Baytek"), and Plaintiff's real estate agent, Herman Gonzalez ("Mr. Gonzalez"), participated in fraud surrounding the origination of the loan. Compl. ¶¶ 47-84. The loan was secured by a deed of trust in favor of FMFC, which named MERS as the beneficiary. RJN Ex. 2. The deed of trust named Financial Title Company ("FTC") as the trustee. Id. Sometime thereafter, BofA acquired the loan servicing rights to Plaintiff's loan. See Compl. ¶ 5.

In May 2010, Plaintiff defaulted on his loan. RJN Ex. 6. On September 21, 2011, MERS assigned the beneficial interest under the deed of trust to BNYM. RJN Ex. 3. A duplicative assignment to BNYM was recorded on October 6, 2011. RJN Ex. 4. Also on October 6, 2011, MERS recorded a substitution of trustee, appointing ReconTrust Company, N.A. ("ReconTrust")as trustee under the deed of trust. RJN Ex. 5. On October 6, 2011, ReconTrust recorded a notice of default. RJN Ex. 6.

Three months later, on January 19, 2012, Plaintiff initiated this action in Santa Clara County Superior Court. The original complaint alleged the following causes of action under California law: (1) violation of California Civil Code § 2923.5; (2) violation of California Civil Code § 2924; (3) violation of California Business and Professions Code § 17200; (4) fraud; (5) negligent misrepresentation; (6) breach of implied covenant of good faith and fair dealing; and (7) declaratory relief. Compl. ¶¶ 98-252. The original complaint does not assert any federal claims.

On February 22, 2012, Defendants removed the action to federal court asserting diversity jurisdiction pursuant to 28 U.S.C. § 1332 as the sole basis for removal under 28 U.S.C. § 1441(b). ECF No. 1. On March 14, 2012, Defendants moved to dismiss the complaint. ECF No. 9.

The removed case was initially assigned to Magistrate Judge Grewal. On March 20, 2012, the case was reassigned to the undersigned judge. ECF No. 12. On March 22, 2012, Defendants re-filed and re-noticed their motion to dismiss. ECF No. 13. On March 27, 2012, in lieu of filing an opposition to Defendants' motion to dismiss, Plaintiff filed an amended complaint. ECF No. 15 ("FAC"). The amended complaint added Baytek, Mr. Gonzalez, and ReconTrust (collectively, "newly added Defendants") as Defendants. In all other respects, the factual allegations in the FAC are substantially similar to the original complaint. Moreover, the four causes of action in the FAC were all pled in the original complaint: (1) Cal. Civ. Code § 2923.5; (2) Cal. Bus. & Prof. Code § 17200; (3) fraud; and (4) breach of implied covenant of good faith and fair dealing. As with the original complaint, the FAC does not assert any federal claims.

On April 4, 2012, the Court issued an Order requiring Defendants to either (1) withdraw the motion to dismiss or (2) file a statement explaining why the pending motion to dismiss was not mooted by Plaintiff's amended complaint. ECF No. 20. On April 5, 2012, Defendants responded to the Court's April 4, 2012 Order with a statement that the pending motion to dismiss is not moot because Plaintiff improperly amended the complaint without leave of the Court in a fraudulent attempt to destroy diversity jurisdiction. ECF No. 21, at 1.

On April 6, 2012, Defendants moved to strike the FAC. ECF No. 22. On April 23, 2012, Plaintiff opposed the motion to strike. ECF No. 23. Defendants did not file a reply.

II. DISCUSSION

A. Motion to Strike

Defendants move to strike Plaintiff's FAC pursuant to Federal Rule of Civil Procedure 12(f). Rule 12(f) provides in relevant part that a court "may strike from a pleading . . . any redundant, immaterial, impertinent, or scandalous matter." "Motions to strike are generally disfavored." Abney v. Alameida, 334 F.Supp.2d 1221, 1234 (S.D. Cal. 2004) (citing Cairns v. Franklin Mint Co., 24 F. Supp. 2d 1013, 1037 (C.D. Cal. 1998)). "[T]he function of a 12(f) motion to strike is to avoid the expenditure of time and money that must arise from litigating spurious issues by dispensing with those issues prior to trial." Sidney-Vinstein v. A.H. Robins Co., 697 F.2d 880, 885 (9th Cir. 1983). Ultimately, whether to grant a motion to strike lies within the sound discretion of the district court. See Whittlestone, Inc. v. Handi-Craft Co., 618 F.3d 970, 973 (9th Cir. 2010).

Defendants' motion to strike the FAC is an impermissible use of Rule 12(f). Defendants do not argue that any material in the FAC is "redundant, immaterial, impertinent, or scandalous," the only possible bases to strike material under Rule 12(f). See id. at 973-74. Instead, Defendants seek to strike the entirety of the FAC, because it was improperly filed without leave to amend. This is an impermissible use of Rule 12(f), because it seeks to use Rule 12(f) as a substitute for Rule 12(b)(6). See Yamamoto v. Omiya, 564 F.2d 1319, 1327 (9th Cir. 1977) (stating that Rule 12(f) is not an authorized or a proper way to procure the dismissal of all or a part of a complaint); see also Whittlestone, 618 F.3d at 974 ("Were we to read Rule 12(f) in a manner that allowed litigants to use it as a means to dismiss some or all of a pleading . . ., we would be creating redundancies within the Federal Rules of Civil Procedure, because a Rule 12(b)(6) motion (or a motion for summary judgment at a later stage in the proceedings) already serves such a purpose."); Low v. City of Sacramento, 10-CV-01624-JAM, 2011 WL 2935858, at *6 (E.D. Cal. July 18, 2011) (holding that defendants' motion to strike claims asserted against newly named individualdefendants was an impermissible use of Rule 12(f)). Defendants' contention that a motion to strike is permissible is unpersuasive because the contention relies on a district court opinion decided before the Ninth Circuit's Whittlestone decision, which arguably limited the permissible uses of Rule 12(f). See MTS 2 (citing Brown v. Ikon Office Solutions, Inc., No. 09-CV-03434-JSW, 2009 U.S. Dist. LEXIS 102486, at *2-*3 (N.D. Cal. Nov. 4, 2009)). An impermissible use of a Rule 12(f) motion alone would be reason to deny Defendants' motion to strike.

Moreover, even if Defendants' motion to strike were a permissible use of Rule 12(f), the motion would not have merit. Pursuant to Federal Rule of Civil Procedure 15(a), a party may amend a pleading as of right "if the pleading is one to which a responsive pleading is required, 21 days after service of a responsive pleading or 21 days after service of a motion under Rule 12(b), (e), or (f), whichever is earlier." Fed. R. Civ. P. 15(a)(1)(B). Here, Defendants filed their 12(b)(6) motion to dismiss Plaintiff's complaint on March 14, 2012. Thus, under Rule 15(a), Plaintiff had until April 4, 2012, to amend his complaint as of right. Defendants' argument that Plaintiff required leave of the Court before filing the amended complaint is not persuasive given that Plaintiff amended his complaint on March 27, 2012, well within the window to amend his complaint as of right. Furthermore, even if leave were required, the Court would grant leave to amend because, as discussed below, the newly added Defendants were properly joined pursuant to 28 U.S.C. § 1447(e). Accordingly, Defendants' motion to strike Plaintiff's FAC is DENIED.

B. Motion to Dismiss

Because the motion to strike is denied, as discussed above, Plaintiff properly filed the FAC. Defendant's motion to dismiss the original complaint is thus moot. Defendants' argument that the motion to dismiss is not moot was predicated on Defendants' prevailing on the motion to strike the FAC. See ECF No. 21 ("Defendants' motion to dismiss is not moot because Defendants will be submitting a motion to strike Plaintiff's FAC"). Therefore, Defendants have no remaining argument regarding mootness. Accordingly, Defendants' motion to dismiss is DENIED, without prejudice, as moot in light of Plaintiff's properly filed FAC. See De Long v. Bank of Am., N.A., 11-CV-06388-LHK, 2012 WL 195174, at *2 n.6 (N.D. Cal. Jan. 23, 2012).

C. Subject Matter Jurisdiction

A federal court is obliged to raise issues concerning its subject matter jurisdiction sua sponte. Fiedler v. Clark, 714 F.2d 77, 78-79 (9th Cir. 1983); Chaganti v. I2 Phone Int'l, Inc., 635 F. Supp. 2d 1065, 1070 (N.D. Cal. 2007) (Walker, J.) aff'd, 313 F. App'x 54 (9th Cir. 2009); see also Fed. R. Civ. P. 12(h)(3) ("If the court determines at any time...