Martinez v. Wells Fargo Bank

• Decision Date: 21 May 2013
• Docket Number: No. C–12–6006 EMC.,C–12–6006 EMC.
• Citation: 946 F.Supp.2d 1010
• Parties: Raul MARTINEZ, et al., Plaintiffs, v. WELLS FARGO BANK, Defendant.
• Court: U.S. District Court — Eastern District of California

946 F.Supp.2d 1010

Raul MARTINEZ, et al., Plaintiffs,

v.WELLS FARGO BANK, Defendant.

No. C–12–6006 EMC.

United States District Court,

N.D. California.

May 21, 2013.

Hakop A. Keshishyan, Lauro Nick Pacheco, Jr., Nick Pacheco Law Group, Mission Hills, CA, for Plaintiffs.

Christopher Alan Carr, Dong–Youl Dennis La, Robert C. Little, Anglin, Flewelling Rasmussen Campbell & Trytten, LLP, Pasadena, CA, for Defendant.

ORDER GRANTING PLAINTIFFS' MOTION TO REMAND; AND DENYING DEFENDANT'S MOTION TO DISMISS AS MOOT

EDWARD M. CHEN, District Judge.

I. INTRODUCTION

At issue is whether, for purposes of diversity jurisdiction, a national bank is a citizen solely of the state in which its main office is located, as identified in its articles of association (the “state of association”), or is also a citizen of the state in which its principal place of business is located. Plaintiffs Raul Martinez and Martha L. Miranda initially brought this action in state court against the successor in interest to the lender for their property at 327 Foerster Street, San Francisco, California (the “Property”), Defendant Wells Fargo Bank, N.A. (“Wells Fargo”), based on Defendant's conduct surrounding issuance and servicing of the note for the Property. See Compl., Docket No. 1 Ex. A. Plaintiffs assert state law claims for (1) violation of California Business & Professions Code section 17200 (the “UCL” claim) based on unfair conduct and fraudulent conduct; (2) fraud; (3) negligent misrepresentation; and (4) breach of the implied covenant of good faith and fair dealing. See Compl. After Defendant removed the case to this Court on the basis of diversity jurisdiction, it brought the instant motion to dismiss. See Mot. to Dismiss, Docket No. 4. Plaintiff brought the instant motion to remand. See Mot. to Remand, Docket No. 14. As the Court finds Defendant to be a citizen of California, diversity jurisdiction is lacking, and thus the Court GRANTS Plaintiff's motion for remand. Defendant's motion to dismiss is DENIED as moot.

II. FACTUAL & PROCEDURAL BACKGROUND

This case stems from an adjustable rate mortgage note for $532,800 (the “Note”) obtained by Plaintiffs in March 2005. See Compl. ¶¶ 17, 19, Ex. 2. ¹ Plaintiffs are Spanish speakers with limited ability to read, speak, and understand English. Id. ¶ 44. Plaintiffs obtained the loan through loan broker Infinity Financial Consultants Inc. (“Infinity”) and John Balladeres (collectively, “the Brokers”), neither of which are defendants in the current action. See id. ¶¶ 3, 52–54. Defendant Wells Fargo is a national bank with the main office identified in its articles of association in South Dakota, but its principal place of business in California. See Remand RJN, Docket No. 19, Ex. 5 art. II, ¶ 1; ² Mot. to Remand 4 (arguing Wells Fargo's principal place of business is in California); Def.'s Opp'n to Mot. to Remand (“Def.'s Opp'n”), Docket No. 18 (not disputing assertion that California is principal place of business).

Plaintiffs' claims are based on two general sets of allegations. First, the bulk of the complaint is devoted to Plaintiffs' allegations that Wells Fargo and the Brokers took part in various deceptive practices that induced Plaintiffs to sign the Note, such as failing to disclose that the loan was designed to cause negative amortization to occur, failing to disclose that the initial interest rate was only temporary, and failing to disclose that unpaid interest would be added to the principal of the loan. See Compl. ¶¶ 66 (UCL claim), 88 (fraud claim), 102–05 (negligent misrepresentation claim), 119 (breach of covenant claim). The Brokers and Wells Fargo represented “that their minimum monthly payments would pay off the balance of the loan during their negotiations with Plaintiffs....” Id. ¶¶ 30, 46. No one explained any of the loan documents to Plaintiffs in Spanish and none of the documents were presented to Plaintiffs in advance. Id. ¶ 33. As a result of these representations and omissions, Plaintiffs executed the Note. Id. ¶ 31. Plaintiffs did not realize that the representations made at the time they executed the Note were false until November 2011, when they sought advice in an attempt to modify their loan with a fixed interest rate. Id. ¶ 43.

Second, although not discussed in the facts section of the complaint, Plaintiffs' UCL and breach of covenant causes of action include allegations that Wells Fargo has “assessed improper or excessive late fees”; “improperly characterized Plaintiffs' account as being in default or delinquent status to generate unwarranted fees”; “misapplied, or failed to apply Plaintiffs' payments”; tried to collect and/or collected various improper fees, costs and charges.” Compl. ¶¶ 68, 121.

In arguing whether there is diversity jurisdiction, the parties contest the citizenship of Wells Fargo. At the hearing on this matter on January 31, 2013, the Court ordered the parties to submit supplemental briefing detailing the legislative history behind adoption of the principal place of business standard in 1958, which the parties filed on April 1, 2013. See Docket Nos. 20–23.

III. MOTION TO REMAND

A. Statutory Backdrop

In order for this Court to retain jurisdiction over the case, there must be complete diversity between the parties. See28 U.S.C. § 1441(b). Normally, corporate citizenship is governed by 28 U.S.C. § 1332(c)(1), which provides that a corporation is a citizen of both its state of incorporation and, since 1958, the state in which its principal places of business is located. However, national banks,³ such as Wells Fargo, are subject to a separate jurisdiction provision, 28 U.S.C. § 1348 (“ § 1348”), which provides, in full, that

The district courts shall have original jurisdiction of any civil action commenced by the United States, or by direction of any officer thereof, against any national banking association, any civil action to wind up the affairs of any such association, and any action by a banking association established in the district for which the court is held, under chapter 2 of Title 12, to enjoin the Comptroller of the Currency, or any receiver acting under his direction, as provided by such chapter.

All national banking associations shall, for the purposes of all other actions by or against them, be deemed citizens of the States in which they are respectively located.

28 U.S.C. § 1348 (emphasis added). However, the statute does not define where national banks are “located” for purposes of jurisdiction, nor is such a definition obvious.

B. Case Law Regarding National Bank Citizenship

Courts have struggled to interpret the last phrase in § 1348. Compare World Trade Center Properties, L.L.C. v. Hartford Fire Ins. Co., 345 F.3d 154 (2d Cir.2003) (a national bank is “a citizen of every state in which it has offices.”), abrogated by Wachovia Bank v. Schmidt, 546 U.S. 303, 309, 126 S.Ct. 941, 163 L.Ed.2d 797 (2006), with Firstar Bank, N.A. v. Faul, 253 F.3d 982, 993 (7th Cir.2001) (national banks are “located” in “the state where the bank's principal place of business is found and the state listed on its organization certificate.”), and with Wells Fargo Bank, N.A. v. WMR e-Pin, LLC, 653 F.3d 702, 709 (8th Cir.2011) (a national bank is “located” only in the state of its main office).

In Wachovia Bank v. Schmidt, 546 U.S. 303, 307, 126 S.Ct. 941, 163 L.Ed.2d 797 (2006), the Supreme Court rejected an interpretation of § 1348 that national banks are citizens of every state in which they have a branch and instead determined “that a national bank, for § 1348 purposes, is a citizen of the State in which its main office, as set forth in its articles of association, is located.” However, the Court did not reach the question of whether a national bank may also be a citizen of the state in which its principal place of business is located, specifically leaving that question unresolved. See id. at 317 n. 9, 126 S.Ct. 941.Schmidt left open the door to either of two interpretations, that a national bank is a citizen of: (1) only its state of association (the state in which its main office is listed in its articles of association); or (2) both its state of association and the state in which its principal place of business is located. See WMR e-Pin, 653 F.3d at 707 (Schmidt did not consider whether a national bank is also a citizen of the state of its principal place of business). The Court turns to the reasoning in Schmidt, the various lower court cases that have considered this issue, and legislative history and legislative policy underlying § 1348 and related statutes to determine which of these two interpretations is correct.

1. Schmidt

In Schmidt, the lower court had found that a national bank is a citizen of every state in which it has established a branch. See546 U.S. at 307, 126 S.Ct. 941. The Supreme Court rejected that interpretation and instead found that national banks are citizens of their states of association. In so holding, Schmidt first looked to the legislative history behind § 1348. As set forth in Schmidt, Congress authorized national banks in 1863, providing that suits in which a national bank was a party could automatically be brought in all federal courts. See id. at 309–10, 126 S.Ct. 941 (citing Act of Feb. 25, 1863, § 59, 12 Stat. 681). In contrast, state banks and other state-incorporated entities could only access federal courts on the basis of diversity of citizenship or federal question jurisdiction. See id. at 310, 126 S.Ct. 941.

National banks' automatic qualification for federal jurisdiction ended in 1882, when Congress passed a bill providing for jurisdictional parity with state-chartered banks, such that jurisdiction would be “the same as, and not other than, the jurisdiction for suits by or against” state banks from the state where national banks were doing business. See id. (quoting Act of July 12, 1882, § 4, 22 Stat. 163). Congress thus established parity between national and local banks for purposes of...