Pham v. Bank of N.Y.

• Decision Date: 10 April 2012
• Docket Number: Case No. 1:12cv2.
• Citation: 856 F.Supp.2d 804
• Court: U.S. District Court — Eastern District of Virginia
• Parties: Kevin HIEN PHAM and Nathalie Monges, Plaintiffs, v. BANK OF NEW YORK, Mortgage Electronic Registration Systems, Inc., Wittstadt Title & Escrow Company, LLC, and John Doe, Defendants.

856 F.Supp.2d 804

Kevin HIEN PHAM and Nathalie Monges, Plaintiffs,

v.BANK OF NEW YORK, Mortgage Electronic Registration Systems, Inc., Wittstadt Title & Escrow Company, LLC, and John Doe, Defendants.

Case No. 1:12cv2.

United States District Court,

E.D. Virginia,

Alexandria Division.

April 10, 2012.

Christopher E. Brown, Brown Brown & Brown, Alexandria, VA, for Plaintiffs.

David Glenn Barger, Greenberg Traurig LLP, McLean, VA, Kevin Roger Hildebeidel, Morris Hardwick Schneider PLLC, Manassas, VA, for Defendants.

MEMORANDUM OPINION

T.S. ELLIS III, District Judge.

This removed state-law action is the second round in a long-running effort by defaulting borrowers to avoid foreclosure on their property. More than a year before the defaulting borrowers initiated this action in state court, they had filed an earlier state-court action also seeking to stay a then-impending foreclosure. The defaulting borrowers' first suit named some of the same entities sued here and raised some of the claims asserted here. ¹ The first round was rained out, so to speak, as the defaulting borrowers voluntarily non-suited the case before defendants' dismissal motions could be decided. In this second round, the defaulting borrowers name four defendants—the noteholder, the nominal beneficiary under the deed of trust, the substitute trustee, and an unnamed purchaser. The gravamen of the complaint is that the current noteholder lacks authority under Virginia law to proceed with the foreclosure. Notwithstanding that two of the named defendants—the nominal beneficiary and the substitute trustee—are non-diverse, the noteholder in this case, as it did in the first case, removed this action on diversity grounds. Thereafter, all named defendants moved for dismissal of the complaint for failure to state a claim. In response, the borrowers argue that they have stated valid claims, but preliminarily seek remand on the ground that the nominal beneficiary and the substitute trustee are not diverse.

For the reasons that follow, the doctrine of fraudulent joinder compels the conclusion that removal was proper because the citizenship of the nominal beneficiary and the substitute trustee may be disregarded for purposes of the jurisdictional inquiry. And further, for the reasons also set forth here, plaintiffs have failed to state a claim as to any defendant. Thus, plaintiffs' motion to remand must be denied, and defendants' motions to dismiss must be granted.

I.

The undisputed facts pertinent to the instant motions may be briefly summarized. Plaintiffs Kevin Hien Pham and Nathalie Monges, the borrowers, are citizens of Virginia presently living at 6146 Calico Pool Lane in Burke, Virginia (the “Burke property”). Defendant Bank of New York (“BNY”), the noteholder, is Delaware corporation with its principal place of business in New York. Defendant Mortgage Electronic Registration Systems, Inc. (“MERS”), the nominal beneficiary of the deed of trust, and Wittstadt Title & Escrow Company, LLC. (“Wittstadt”), the substitute trustee, are Virginia corporations. The alleged third-party purchaser, John Doe, is not specifically identified because the Burke property has not yet been sold, and hence the citizenship of this party is unknown.

On February 18, 2005, Pham executed a promissory note (the “Note”) and a deed of trust securing it (the “Deed of Trust”) in connection with the refinance of the loan secured by the Burke property. The Note evidences Pham's promise to pay the original lender, Encore Credit Corporation (“Encore”), $350,000 to refinance Pham's mortgage loan. The Deed of Trust names both Pham and Monges as the borrowers, Encore as the lender, Dewey B. Morris as the trustee, and MERS as the nominal beneficiary. With respect to the beneficiary specifically, the Deed of Trust states that MERS “is acting solely as a nominee for Lender and Lender's successors and assigns.” (Doc. 3–1 at 3; see also id. at 5). Additionally, the Deed of Trust provides that “Borrower irrevocably grants and conveys to Trustee, in trust, with power of sale,” the Burke property, and also that “the Note (together with this Security Instrument) can be sold one or more times without prior notice to the Borrower.” ( Id. at 5, 14).

Sometime in 2009, plaintiffs ceased making payments on the Note, and the loan went into default. Plaintiffs were advised that unless they cured the default, the Deed of Trust entitled the noteholder to begin foreclosure proceedings. Plaintiffs did not cure the default, and a foreclosure sale was scheduled. Attempting to halt the sale of the Burke property, plaintiffs filed an action in state court, which was subsequently removed to this district, that contained many of the same claims asserted here. See Complaint ¶¶ 10412, Pham v. Bank of N.Y., No. 1:10cv1062 (E.D.Va. Sept. 23, 2010) (Doc. 1–1). Although defendants in that case moved to dismiss the complaint, the motion was not resolved because plaintiffs voluntarily dismissed the case. See Pham v. Bank of N.Y., No. 1:10cv1062 (E.D.Va. Nov. 29, 2010) (Order).

On November 21, 2011—almost one year after their initial action was dismissed—plaintiffs filed the instant action in state court against defendants BNY, MERS, Wittstadt, and an unnamed purchaser. In their four-count complaint, plaintiffs assert the following:

(i) A request for declaratory judgment that BNY is not the secured party under Va.Code § 8.01–184 and thus cannot enforce the Deed of Trust;

(ii) A claim to quiet title on the allegations that BNY cannot enforce the Deed of Trust and therefore cannot make entries in the Burke property record, and that MERS cannot assign rights under the Deed of Trust;

(iii) A request for declaratory judgment that BNY has no interest in the Deed of Trust under Va.Code § 8.01–184; and,

(iv) A claim for wrongful foreclosure on the allegations that BNY has no interest in the Deed of Trust and that Wittsdadt as trustee breached its fiduciary duty to plaintiffs by attempting to foreclose on behalf of an unauthorized party and relying on allegedly inauthentic documents in doing so.

On January 3, 2012, BNY removed the action to federal court pursuant to 28 U.S.C. § 1441 invoking diversity jurisdiction under 28 U.S.C. § 1332. BNY, MERS, and Wittstadt each filed a motion to dismiss the complaint for failure to state a claim pursuant to Rule 12(b)(6), Fed.R.Civ.P. Plaintiffs seek remand of this action on the ground that subject-matter jurisdiction is lacking. ² The motions to dismiss and the motion to remand have been fully briefed and argued and are now ripe for disposition.

II.

The threshold question, as always, must be whether subject-matter jurisdiction exists. This action was removed to federal court on diversity grounds. See28 U.S.C. § 1441(a). Yet, the removal statutes are not independent grants of subject-matter jurisdiction, and remand is required if “it appears that the district court lacks subject matter jurisdiction” over the action,³ as where the parties-in-interest are not completely diverse and no other basis for subject-matter jurisdiction exists. In this regard, plaintiffs argue that the parties are not completely diverse and therefore that remand is required. Defendants respond that because plaintiffs fraudulently joined the non-diverse defendants—MERS and Wittstadt—those defendants' citizenship must be disregarded for purposes of determining whether diversity jurisdiction exists. Thus, the question presented is whether the doctrine of fraudulent joinder operates here to render the citizenship of MERS and Wittstadt irrelevant for diversity purposes. If not, remand is required, but if so, subject-matter jurisdiction exists under § 1332(a), and the matter may proceed in federal court.

The fraudulent-joinder doctrine allows a district court to “assume jurisdiction even if ... there are nondiverse named defendants at the time the case is removed” inasmuch as the court may “disregard, for jurisdictional purposes, the citizenship of certain nondiverse defendants, assume jurisdiction over a case, dismiss the nondiverse defendants, and thereby retain jurisdiction.” Mayes v. Rapoport, 198 F.3d 457, 461 (4th Cir.1999). As one court has aptly put it, “[t]he term ‘fraudulent joinder’ is, in many ways, a misnomer, as it requires neither fraud nor joinder.” Trigo v. Travelers Commercial Ins. Co., No. 3:10cv28, 2010 WL 3521759, at *3 (W.D.Va. Sept. 7, 2010) (citing Mayes, 198 F.3d at 461 n. 8 (noting that the term is “misleading” in this respect)). In particular, although the fraudulent-joinder doctrine applies where “there has been outright fraud in the plaintiff's pleading of jurisdictional facts,” the doctrine also applies where, instead, “there is no possibility that the plaintiff would be able to establish a cause of action against the in-state defendant in state court [.]” Marshall v. Manville Sales Corp., 6 F.3d 229, 232 (4th Cir.1993) (citation omitted). Furthermore, “the doctrine is potentially applicable to each defendant named by the plaintiff in the original complaint or anytime prior to removal” and thus does not depend on joinder subsequent to the filing of the complaint. Mayes, 198 F.3d at 461 n. 8. Indeed, “the [removal] statute does not allow a district court to retain jurisdiction once it permits a nondiverse defendant to be joined in the case.” Id. at 462. In short, application of the fraudulent-joinder doctrine focuses not, as its name might suggest, on whether the plaintiff knowingly seeks to add an improper party as a non-diverse defendant after removal, but rather on whether the plaintiff properly named a non-diverse defendant before removal.

Because there is no suggestion that plaintiffs' naming of the non-diverse defendants was fraudulent in fact,⁴ the determination whether the non-diverse defendants are properly named, and thus whether the fraudulent-joinder doctrine applies, depends on whether there is a reasonable possibility that plaintiff can recover against these defendants....