Cutrone v. Mortg. Elec. Registration Sys., Inc.

• Decision Date: 17 April 2014
• Docket Number: No. 14–455–cv.,14–455–cv.
• Citation: 749 F.3d 137
• Parties: Brian CUTRONE and Jessica Cervone, individually and on behalf of all others similarly situated, Plaintiffs–Appellees, v. MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC., Defendant–Appellant.
• Court: U.S. Court of Appeals — Second Circuit

749 F.3d 137

Brian CUTRONE and Jessica Cervone, individually and on behalf of all others similarly situated, Plaintiffs–Appellees,

v.MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC., Defendant–Appellant.

No. 14–455–cv.

United States Court of Appeals,Second Circuit.

Argued: April 1, 2014.

Decided: April 17, 2014.

Charles C. Martorana, Hiscock & Barclay, LLP, Buffalo, NY, for Defendant–Appellant.

Andrew S. Love (Samuel H. Rudman, Mark S. Reich, William J. Geddish, Susan K. Alexander, on the brief), Robbins Geller Rudman & Dowd LLP, San Francisco, CA, and Melville, NY, for Plaintiffs–Appellees.

Before: WALKER, CHIN, and DRONEY, Circuit Judges.

DRONEY, Circuit Judge:

Defendant-appellant Mortgage Electronic Registration Systems, Inc. (“MERS”) appeals from an order of the United States District Court for the Eastern District of New York (Eric N. Vitaliano, Judge ) granting the motion of the putative class member plaintiffs-appellees (“plaintiffs”), to remand this case to New York state court on the ground that MERS's notice of removal was untimely. The district court concluded that the plaintiffs' complaint contained sufficient information to put MERS on notice of the size of the putative class and amount in controversy to establish subject matter jurisdiction pursuant to 28 U.S.C. § 1332(d), and it held that MERS's notice of removal, filed more than 30 days after receipt of the complaint, was therefore untimely under 28 U.S.C. § 1446(b)(1).

We reverse and hold that, in Class Action Fairness Act (“CAFA”) cases, the 30–day removal periods of 28 U.S.C. §§ 1446(b)(1) and (b)(3) are not triggered until the plaintiff serves the defendant with an initial pleading or other paper that explicitly specifies the amount of monetary damages sought or sets forth facts from which an amount in controversy in excess of $5,000,000 can be ascertained. We also hold that where a plaintiff's papers fail to trigger the removal clocks of 28 U.S.C. §§ 1446(b)(1) and (b)(3), a defendant may remove a case when, upon its own independent investigation, it determines that the case is removable; thus, the 30–day removal periods of 28 U.S.C. §§ 1446(b)(1) and (b)(3) are not the exclusive authorizations for removal in CAFA cases.

Here, neither the plaintiffs' initial complaint nor their response to MERS's demand for a bill of particulars in the state court explicitly specified the amount of damages sought or provided MERS with sufficient information to conclude the threshold amount in controversy was satisfied. The named plaintiffs' identification of their damages ($6,835.20) and their allegation that the potential class “includes hundreds, and likely thousands, of persons and entities,” were not adequate to trigger the 30–day removal periods of 28 U.S.C. §§ 1446(b)(1) and (b)(3). We also hold that MERS properly filed its notice of removal after determining upon its own investigation that the amount in controversy, number of plaintiffs, and diversity between itself and at least one plaintiff class member satisfied the CAFA subject matter jurisdictional requirements set forth in 28 U.S.C. § 1332(d). We accordingly VACATE the order of the district court and REMAND.

BACKGROUND

The Parties and the Class Complaint

Plaintiffs Brian Cutrone and Jessica Cervone filed the present putative class action against MERS in the Supreme Court of the State of New York, Kings County on February 20, 2013. Their complaint asserts causes of action against MERS under New York state law for common law breach of implied warranty, deceptive business practices in violation of New York General Business Law Section (“NYGBL”) § 349, and false advertising in violation of NYGBL § 350, allegedly committed in connection with MERS's facilitation of the provision of “Esign” ¹ mortgages to consumer-borrowers.

According to the plaintiffs' complaint, MERS is a Delaware 15 corporation with its principal place of business in Virginia. MERS created an Internet-based electronic process through which borrowers can obtain paperless Esign mortgages and engage in refinancing of mortgages, and members of the real estate mortgage industry can more easily securitize and bundle mortgages. To facilitate these transactions, MERS acts as the mortgagee of record in local recording offices regardless of the number of times a mortgage is refinanced or the relevant lenders change.

When a party executes an Esign mortgage, no physical mortgage document, such as a mortgage note, is created. Instead, the mortgage documents exist as electronic records registered on MERS's “eRegistry.” When a party later wishes to refinance an Esign mortgage or otherwise assign it to another party, MERS inputs the applicable changes into its eRegistry. Thus, although MERS never physically holds a mortgage note or related instrument, MERS asserts that it facilitates mortgage and note assignments, including refinancing, utilizing its electronic database.

New York state courts have held that a lender does not have standing to commence a foreclosure action when its assignor, MERS, neither received the right to transfer the mortgage note nor physically possessed the underlying mortgage note. See, e.g., Bank of N.Y. v. Silverberg, 86 A.D.3d 274, 926 N.Y.S.2d 532, 538–40 (2d Dep't 2011). Esign mortgages acquired through MERS's electronic system may be “non-assignable,” which limits MERS's customers' ability to refinance their mortgages electronically and avoid recording fees, as well as MERS's ability to transfer pools of mortgages as securities.

Cutrone and Cervone obtained their first mortgage on their home in Brooklyn through an Esign mortgage that listed MERS as the nominee and mortgagee on March 27, 2008, and paid $7,476.00 in taxes as required by New York's mortgage recording tax.²SeeN.Y. Tax Law § 253. Four years later, they refinanced their mortgage. They were unable to utilize a New York Consolidation, Extension and Modification Agreement (“CEMA”), which permits a mortgagor to consolidate his original and refinanced mortgages and pay only the difference in mortgage recording tax between the two mortgages. A CEMA could not be used because MERS could not effectuate the assignment between the original and new lenders. The plaintiffs thus paid a second mortgage recording tax of $6,835.20 on their refinanced mortgage on January 7, 2013.

In their putative class action complaint, which alleges that other borrowers were also required to pay additional recording taxes because of their Esign mortgages, the plaintiffs do not specifically enumerate either the expected number of class members that will join them or the total amount of additional mortgage recording taxes paid by class members. The plaintiffs merely provide the amount of the mortgage recording tax they paid on their refinanced mortgage ($6,835.20) and estimate that the class includes “hundreds, and likely thousands, of persons and entities.” The plaintiffs also failed to specify in their response to the defendant's demand for a bill of particulars in the state court the number of members in the putative class, estimating again that there were more than 100 likely plaintiffs and, as to the damages sought by the class, that they “cannot reasonably state the precise amount in controversy.”

Federal District Court Proceedings

On May 24, 2013, more than 90 days after the plaintiffs filed their initial complaint in New York state court, MERS filed a notice of removal in the United States District Court for the Eastern District of New York asserting diversity jurisdiction under CAFA, 28 U.S.C. § 1332(d). The notice alleges that MERS examined its own records and concluded that its eRegistry contained more than 3,000 registered promissory notes in electronic form secured by mortgages on real property located in New York. The notice also estimates that, given the large number of relevant promissory notes in MERS's eRegistry, “even using a conservative estimate of damages for each possible class member,there is a reasonable probability that the matter in controversy exceeds the value of $5,000,000 as required by 28 U.S.C. § 1332(d).” ³ Finally, the notice states that MERS is a Delaware corporation with its principal place of business located in Virginia and that the named plaintiffs and all members of the purported class are citizens of New York, thus satisfying minimal diversity requirements.

On June 24, 2013, the plaintiffs filed a motion to remand, asserting that MERS's removal was untimely under 28 U.S.C. § 1446(b)(1) because the plaintiffs' complaint provided MERS with sufficient information to determine the likely number of plaintiffs and total amount in controversy. By order dated October 28, 2013, the district court granted the plaintiffs' motion, concluding that, although the complaint filed on February 20, 2013, did not specify either the total amount of damages sought or an exact number of class members, it provided MERS with “all it needed to know in order to enable it to make an intelligent assessment as to CAFA removability.” Cutrone v. Mortg. Elec. Registration Sys., Inc., No. 13–CV–3075 (ENV)(VMS), 981 F.Supp.2d 144, 151, 2013 WL 5960827, at *6 (E.D.N.Y. Nov. 6, 2013). Because MERS did not file its notice of removal within 30 days of receiving the complaint, the court held, its notice was untimely pursuant to 28 U.S.C. § 1446(b)(1). Id. at 153, 2013 WL 5960827, at *8.

The district court rejected MERS's argument that our holding in Moltner v. Starbucks Coffee Co., 624 F.3d 34, 38 (2d Cir.2010) (per curiam), that “the removal clock does not start to run until the plaintiff serves the defendant with a paper that explicitly specifies the amount of monetary damages sought” should be applied to CAFA cases. Cutrone, 981 F.Supp.2d at 151–53, 2013 WL 5960827, at *5–7. The district court also reasoned that tying the removal clocks of 28 U.S.C. § 1446(b) to the serving of an explicit statement of damages would be problematic here because it would mean that the...