McFadden v. Fed. Nat'l Mortg. Ass'n
| Decision Date | 20 May 2013 |
| Docket Number | No. 12-1125,12-1125 |
| Parties | HERBERT A. MCFADDEN; ROSETTA E. MCFADDEN, Plaintiffs - Appellants, v. FEDERAL NATIONAL MORTGAGE ASSOCIATION; FLAGSTAR BANK, FSB; SAMUEL I. WHITE, P.C., Defendants - Appellees. |
| Court | United States Courts of Appeals. United States Court of Appeals (4th Circuit) |
UNPUBLISHED
Appeal from the United States District Court for the Western District of Virginia, at Roanoke. James C. Turk, Senior District Judge. (7:11-cv-00335-JCT)
Before WILKINSON, KEENAN, and WYNN, Circuit Judges.
ARGUED: Thomas Dean Domonoske, Harrisonburg, Virginia, for Appellants. Joseph Samuel Dowdy, NELSON MULLINS RILEY & SCARBOROUGH, LLP, Raleigh, North Carolina; Ronald James Guillot, Jr., SAMUEL I. WHITE, PC, Virginia Beach, Virginia, for Appellees. ON BRIEF: George E. Kostel, NELSON MULLINS RILEY & SCARBOROUGH, LLP, Washington, D.C., for Appellees Federal National Mortgage Association and Flagstar Bank, FSB.
Unpublished opinions are not binding precedent in this circuit.
Herbert A. McFadden and Rosetta E. McFadden (the McFaddens) filed a complaint in a Virginia state court against Flagstar Bank, F.S.B. (Flagstar), Federal National Mortgage Association (Fannie Mae), and Samuel I. White, P.C. (White, P.C.) (collectively, the defendants), asserting various claims relating to the foreclosure and sale of the McFaddens' home. After the defendants removed the action to the federal district court, the McFaddens filed a motion to remand the case to the state court on the ground that the district court lacked subject matter jurisdiction. The district court summarily denied the motion to remand. After a hearing, the court granted the defendants' motions to dismiss. Among other things, the court held that the McFaddens failed to state a claim under Federal Rule of Civil Procedure 12(b)(6). The McFaddens filed a timely appeal to this Court.
Upon our review, we hold that the district court did not err in denying the McFaddens' motion to remand, because the court had diversity jurisdiction over the McFaddens' claims pursuant to 28 U.S.C. § 1332. We further hold that the district court did not err in dismissing under Rule 12(b)(6) their claim to quiet title and their equitable claim to set aside the foreclosure sale, because those claims lacked a sufficient factual and legal basis.
The McFaddens alleged in their complaint the following facts, which we accept as true for purposes of this appeal.1 In July 2007, the McFaddens obtained a loan from Flagstar for $116,500, which was secured by a deed of trust on the McFaddens' home in Pulaski County, Virginia (the property). The terms of the loan were set forth in a note, in which the McFaddens agreed to make monthly payments of about $900 for 20 years.
The terms of the note established that Flagstar could freely transfer the note to a third party without notice to the McFaddens. The deed of trust similarly provided for the free transfer of the note and stated that the agreements in the deed of trust "shall bind . . . and benefit the successors and assigns" of the lender. The deed of trust named Flagstar as the lender, and named Mortgage Electronic Registration Systems, Inc. (MERS) as the beneficiary and "nominee for Lender and Lender's successors and assigns."
At some point before August 2009, Flagstar transferred the note to Fannie Mae, but retained the obligation to receive the loan payments and continued to function as the "servicer" on the loan. After the McFaddens began having trouble making loanpayments, Flagstar sent them a letter describing the Home Affordable Modification Program (HAMP), a federal program designed to help certain homeowners who are financially unable to meet their current mortgage obligations. See U.S. Dep't of the Treasury, Home Affordable Modification Program Guidelines (Mar. 4, 2009)2 ; see also Loan Modification Group, Inc. v. Reed, 694 F.3d 145, 147 (1st Cir. 2012) (describing HAMP). The letter stated that if the McFaddens qualified under HAMP and complied with the terms of a "trial period plan," their loan would be modified, permitting them to avoid foreclosure.
In response to this letter, the McFaddens submitted documentation to Flagstar seeking to qualify for a loan modification, and the application process continued over a period of many months. According to Flagstar, the process was delayed due to the McFaddens' failure to submit all the required documents. The McFaddens alleged, however, that Flagstar lost certain documents that they had submitted, and required them to provide various duplicate items on several occasions. Before receiving a final decision on their loan modification application, the McFaddens were notified that because theydefaulted on the loan, their property would be sold at auction on March 10, 2011 (the foreclosure sale).
The notice of foreclosure was signed by White, P.C., which was listed as substitute trustee. Attached to that notice was a document executed by Flagstar, stating that it was "the present holder or the authorized agent of the holder of the note secured by the deed of trust," and that, as such entity, Flagstar had appointed White, P.C. as substitute trustee.
Upon receiving the notice of foreclosure, the McFaddens contacted Flagstar, and a Flagstar representative allegedly informed them orally that "their loan modification was in process, and that no foreclosure would occur." However, the foreclosure sale proceeded in accordance with the terms contained in the notice. Flagstar was the highest bidder at the sale, and purchased the property for $123,009.
Flagstar assigned its rights in the property to Fannie Mae, after which White, P.C. executed and delivered a deed of trust transferring the property to Fannie Mae (the foreclosure deed). About one week after the foreclosure sale, the McFaddens received written notice from Flagstar that their loan modification application had been denied.
Fannie Mae filed an unlawful detainer action in Virginia state court against the McFaddens, seeking to evict them and to take possession of the property. In response, the McFaddensfiled the present action in Virginia state court against the defendants asserting six claims, including the quiet title claim and a claim for equitable relief to set aside the foreclosure sale. The McFaddens also asserted violations of the Virginia Consumer Protection Act (VCPA) against White, P.C.3 The defendants removed the case to the federal district court, on the basis that the court had federal question jurisdiction under 28 U.S.C. § 1331. According to the defendants, the McFaddens' claims were governed by the Home Owners Loan Act (HOLA), 12 U.S.C. §§ 1461-1470.
The McFaddens filed a motion to remand, contending that the district court lacked subject matter jurisdiction because the claims presented only questions of state law. In opposition to the motion to remand, Flagstar and Fannie Mae argued that in addition to federal question jurisdiction, the district court had diversity jurisdiction over the action in accordance with 28 U.S.C. § 1332. Flagstar and Fannie Mae contended that even though both the McFaddens and one defendant, White, P.C., were citizens of Virginia, there was complete diversity of the parties because the McFaddens lacked any possible cause of action against White, P.C. and, therefore, under the doctrine offraudulent joinder, White, P.C.'s citizenship should not be considered.
The district court summarily denied the McFaddens' motion to remand, and did not state on which basis the court was exercising jurisdiction. The court proceeded to consider the defendants' motions to dismiss the case. After a hearing, the district court granted the motions to dismiss, concluding that HOLA preempted the McFaddens' claims and, alternatively, that the McFaddens' complaint failed to state a claim under Rule 12(b)(6). The McFaddens timely filed the present appeal.
The McFaddens contend that the district court lacked subject matter jurisdiction over their state law claims. We review de novo questions of subject matter jurisdiction, including questions related to the propriety of removal. Moffitt v. Residential Funding Co., LLC, 604 F.3d 156, 159 (4th Cir. 2010). Because of concerns involving principles of federalism, this Court strictly construes a district court's jurisdiction when considering an issue of removal. Mulcahey v. Columbia Organic Chems. Co., Inc., 29 F.3d 148, 151 (4th Cir. 1994).
Under 28 U.S.C. § 1441, "any civil action brought in a State court of which the district courts of the United States have original jurisdiction, may be removed by the defendant" to the appropriate district court. 28 U.S.C. § 1441(a). The defendants argue that the district court had both federal question jurisdiction and diversity jurisdiction over the McFaddens' claims.
We first consider whether the district court had jurisdiction over the removed action on the basis of diversity of citizenship of the parties. To invoke the district court's diversity jurisdiction, the parties must be completely diverse, meaning that none of the plaintiffs shares citizenship with any of the defendants, and the amount in controversy must exceed the jurisdictional threshold. 28 U.S.C. § 1332; Mayes v. Rapoport, 198 F.3d 457, 461 (4th Cir. 1999); Owens-Illinois, Inc. v. Meade, 186 F.3d 435, 440 (4th Cir. 1999). In the present case, the parties do not dispute that the required amount in controversy is satisfied. Instead, they focus their arguments on the question whether the parties are completely diverse, given the fact that the McFaddens and White, P.C. are both citizens of Virginia.
The McFaddens assert that because White, P.C. is a defendant in their quiet title, equitable, and VCPA claims, the parties to the lawsuit do not meet the requirement of completediversity. In response, the defendants...
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