Dunbar v. Wells Fargo Bank, N.A., Civil No. 11–3683(DSD/FLN).

• Citation: 853 F.Supp.2d 839
• Decision Date: 12 April 2012
• Docket Number: Civil No. 11–3683(DSD/FLN).
• Parties: Edgarline DUNBAR, James M. Jenkins, Paul Olson and Seng Herr and Yia Her, Plaintiffs, v. WELLS FARGO BANK, N.A., Mortgage Electronic Registration Systems, Inc., Merscorp, Inc., Federal National Mortgage Association and Reiter & Schiller, P.A., Defendants.
• Court: U.S. District Court — District of Minnesota

853 F.Supp.2d 839

Edgarline DUNBAR, James M. Jenkins, Paul Olson and Seng Herr and Yia Her, Plaintiffs,

v.WELLS FARGO BANK, N.A., Mortgage Electronic Registration Systems, Inc., Merscorp, Inc., Federal National Mortgage Association and Reiter & Schiller, P.A., Defendants.

Civil No. 11–3683(DSD/FLN).

United States District Court,

D. Minnesota.

April 3, 2012.

As Amended April 12, 2012.

William B. Butler, Esq., Butler Liberty Law, LLC, Minneapolis, MN, for plaintiffs.

Charles F. Webber, Esq., Trista M. Roy, Esq. and Faegre Baker Daniels, LLP, Minneapolis, MN, for defendants.

ORDER

DAVID S. DOTY, District Judge.

This matter is before the court upon the motions to dismiss by defendants and motions to remand and amend the complaint by plaintiffs. Based on a review of the file, record and proceedings herein, and in accordance with the ruling of the court following oral argument, the motions to amend and remand are denied and the motions to dismiss are granted.

BACKGROUND

In this mortgage-foreclosure dispute, plaintiffs Edgarline Dunbar, James Jenkins, Paul Olson, Seng Herr and Yia Her challenge foreclosure-by-advertisement proceedings by defendant Wells Fargo Bank, N.A. (Wells Fargo). Plaintiffs also sue defendants Mortgage Electronic Registration Systems, Inc. (MERS); Merscorp, Inc.; Federal National Mortgage Association (FNMA) and Reiter & Schiller, P.A. (Reiter & Schiller). Wells Fargo is an assignee of the mortgages securing the Dunbar, Jenkins and Olson transactions and is the original mortgagee of the property securing the Herr and Her transaction. The court briefly summarizes the transactions.

Dunbar executed a promissory note secured by a mortgage of real property to nonparty Option One Mortgage Corporation n/k/a Sand Canyon Corporation (Option One). Compl. ¶ 1. Option One recorded the mortgage in March 2005. Defs.' App. 002, ECF No. 13. Option One “transferred, assigned or sold” the note into the secondary market, and it became part of a mortgage-backed security. Compl. ¶¶ 17–18. Dunbar defaulted on her monthly payments. In 2010, Option One assigned the mortgage to Wells Fargo, as Trustee for Option One Mortgage Loan Trust 2005–2 Asset–Backed Certificates, Series 2005–2. See id. ¶¶ 37–38; Defs.' App. 003–04. The assignment was recorded. Defs.' App. 003–04. Wells Fargo recorded notices of pendency to foreclose the mortgage in July 2010 and April 2011. Id. at 005–08. Notice of a sheriff's sale was published for six weeks in April and May 2011. Id. Wells Fargo purchased the property at a sheriff's sale in June 2011. Id. at 009–010.

Jenkins executed a promissory note secured by a mortgage of real property to nonparty American Residential Mortgage, LP (American) Compl. ¶ 2. American recorded the mortgage in September 2003, and assigned the mortgage to Wells Fargo. See id. ¶¶ 44–45; Defs.' App. 0046. The assignment was recorded. Defs.' App. 046. Jenkins defaulted on his monthly payments. Notice of a sheriff's sale was published for six weeks in August and September 2011. Id. at 055–56. Wells Fargo purchased the property at a sheriff's sale in September 2011. Id. at 067–68.

Olson executed a promissory note secured by a mortgage of real property. Compl. ¶ 3. MERS recorded the mortgage in February 2008. Defs.' App. 073. Olson defaulted on his monthly payments. In November 2010, MERS assigned the mortgage to Wells Fargo. See Compl. ¶ 49. The assignment was recorded. Defs.' App. 087–89. Notice of a sheriff's sale was published for six weeks in November and December 2010. Id. at 055–056. After several postponements, Wells Fargo purchased the property at a sheriff's sale in May 2011. Id. at 117–18.

Herr and Her executed a promissory note secured by a mortgage of real property to Wells Fargo. Compl. ¶ 4. The mortgage was recorded in July 2009. Defs.' App. 131. Herr and Her defaulted on their monthly payments. Notice of a sheriff's sale was published for six weeks in June and July 2011. Id. at 152–53. Wells Fargo purchased the property at a sheriff's sale in September 2011. Id. at 168–69.

Each transaction involved a similar mortgage document. The court uses the transactions related to the Dunbar property as an example of the documents in this action.¹ Dunbar signed a note promising to make payments of principal and interest on the first day of the month for thirty years. Butler Aff. Ex. 1, ECF No. 16–1, at 3. The note defines the note holder as Option One or its assignees. Id. Dunbar agreed that if she does “not pay the full amount of each monthly payment on the date it is due, [she] will be in default.” Id. at 7. Dunbar also gave a mortgage to Option One, in which she promised to pay principal and interest in accordance with the due dates in the note. See id. Ex. 2, ECF No. 16–2, at 2. The mortgage defines Option One as the lender, and states that if the note were sold, “the holder of the note and this Security Interest shall be deemed to be the Lender.” Id. at 5 (paragraph 19). The mortgage gives the lender the power of sale. Id. The mortgage also provides that if “[Dunbar] should be in default under any provision of this security agreement ... all sums secured by this Security Instrument ... shall at once become due and payable at the option of Lender.” Id. at 6 (paragraph 21). The lender may then “invoke the power of sale and or any other remedies or take any other actions permitted by applicable law, including foreclosure of this Security Instrument by advertisement or action.” Id.

The present action began in Minnesota court on December 7, 2011. Plaintiffs seek to quiet title, and claim that defendants are not real parties in interest, that defendants lack legal standing to foreclose, slander of title, conversion, unjust enrichment, civil conspiracy, breach of fiduciary duty, fraud, negligent misrepresentation, equitable estoppel and accounting. Defendants timely removed and move to dismiss.² Plaintiffs move to remand and to amend the complaint.

DISCUSSION

I. Motion to Remand

The court must resolve questions of jurisdiction before considering the merits of an action. See Crawford v. F. Hoffman–La Roche Ltd., 267 F.3d 760, 764 (8th Cir.2001). A plaintiff may move to remand an action removed to federal court if “it appears that the district court lacks subject matter jurisdiction” at any time before entry of final judgment. 28 U.S.C. § 1447(c). The removing party bears the burden to establish the existence of subject-matter jurisdiction. See Altimore v. Mount Mercy Coll., 420 F.3d 763, 768 (8th Cir.2005). The court “resolve[s] all doubts about federal jurisdiction in favor of remand.” Transit Cas. Co. v. Certain Underwriters at Lloyd's of London, 119 F.3d 619, 625 (8th Cir.1997).

A. Diversity Jurisdiction

Jurisdiction under 28 U.S.C. § 1332 requires an amount in controversy greater than $75,000 and complete diversity of citizenship. In the present action, plaintiffs argue that diversity is lacking because the plaintiffs and Reiter & Schiller are all citizens of Minnesota.

“Fraudulent joinder occurs when a plaintiff files a frivolous or illegitimate claim against a non-diverse defendant solely to prevent removal.” In re Prempro Prods. Liab. Litig., 591 F.3d 613, 620 (8th Cir.2010) (citation omitted). The court “focuses only on whether a plaintiff might have a colorable claim under state law against a fellow resident” to determine whether a party is fraudulently joined. Wilkinson v. Shackelford, 478 F.3d 957, 964 (8th Cir.2007) (citation and internal quotation marks omitted). In other words, joinder is fraudulent “only when there exists no reasonable basis in fact and law supporting a claim against the resident defendant[ ].” Id. (citation and internal quotation marks omitted).

In the present action, there is no scenario in which Reiter & Schiller could be liable for slander of title, conversion, civil conspiracy, negligent misrepresentation, fraud or equitable estoppel. First, Reiter & Schiller acted as defendants' counsel (against some of the present plaintiffs) to conduct foreclosures by advertisement, and attorneys acting within the scope of employment are “immune from liability to third persons for actions arising out of that professional relationship.” McDonald v. Stewart, 289 Minn. 35, 182 N.W.2d 437, 440 (1970). Moreover, as discussed below, all of plaintiffs' claims against Reiter & Schiller are based on the rejected theory that holders of recorded assignments of mortgages cannot foreclose without possession of the note. As a result, the court determines that Reiter & Schiller is fraudulently joined, and complete diversity exists. The amount in controversy exceeds $75,000, and therefore the court has jurisdiction over this action.³

B. Prior Exclusive Jurisdiction

Plaintiffs next argue that the court lacks jurisdiction under the doctrine of prior exclusive jurisdiction because they brought the action first in state court. The doctrine avoids “unseemly and disastrous conflicts in the administration of our dual judicial system” when one court has assumed and retains ongoing in rem or quasi in rem jurisdiction. Penn Gen. Cas. Co. v. Pennsylvania ex rel. Schnader, 294 U.S. 189, 195, 55 S.Ct. 386, 79 L.Ed. 850 (1935). “The prior exclusive jurisdiction doctrine holds that ‘when one court is exercising in rem jurisdiction over a res, a second court will not assume in rem jurisdiction over the same res.’ ” Chapman v. Deutsche Bank Nat. Trust Co., 651 F.3d 1039, 1043 (9th Cir.2011) (quoting Marshall v. Marshall, 547 U.S. 293, 311, 126 S.Ct. 1735, 164 L.Ed.2d 480 (2006)).

The doctrine of prior exclusive jurisdiction does not apply to the present action; the state court is not exercising jurisdiction over this action. This is not a case where parallel proceedings are occurring or where the parties filed independent actions in state and federal court. Instead, a single action exists in federal court following removal. Accord Maves v. First Horizon Home Loans, 461 Fed.Appx. 636, 637–38 (9th Cir.2011) (holding...