Schayes v. T.D. Serv. Co. of Ariz., CV-10-02658-PHX-NVW

CourtUnited States District Courts. 9th Circuit. United States District Courts. 9th Circuit. District of Arizona
PartiesDaniel Schayes and Wendy Schayes, husband and wife, Plaintiffs, v. T.D. Service Company of Arizona, current trustee, and Pennymac Loan Services, LLC, current beneficiary, et al., Defendants.
Docket NumberNo. CV-10-02658-PHX-NVW,CV-10-02658-PHX-NVW
Decision Date11 May 2011

Daniel Schayes and Wendy Schayes, husband and wife, Plaintiffs,
T.D. Service Company of Arizona, current trustee, and Pennymac Loan Services, LLC,
current beneficiary, et al., Defendants.

No. CV-10-02658-PHX-NVW


Dated: May 11, 2011


Before the Court is "Plaintiffs' Motion to Remand" (Doc. 7) and "Defendant Pennymac Loan Services, LLC's Motion to Dismiss Complaint" (Doc. 6). Defendant T.D. Service Company of Arizona has joined the motion to dismiss (Doc. 9). The Court will deny Plaintiffs' motion, grant Defendants' motion, and dissolve the temporary restraining order issued by the Maricopa County Superior Court. The Court will also grant Plaintiffs leave to amend their complaint.


The Court draws the following facts mostly from Plaintiffs' haphazard complaint, as well as the documents that Plaintiffs submitted in preliminary injunction proceedings before the Maricopa County Superior Court. The Court will assume the truth of Plaintiffs' plausibly alleged facts, as it must for purposes of the pending motion to dismiss. Knievel v. ESPN, 393 F.3d 1068, 1072 (9th Cir. 2005).

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Sometime before March 22, 2007, Plaintiffs Daniel and Wendy Schayes decided to buy a home in Arizona with financing of $1,295,000 provided by CitiMortgage, Inc.1 The Schayes filled out a loan application in which they accurately provided their then-current income, as well as supporting documentation in the form of tax returns for the previous two years. However, unknown to the Schayes, CitiMortgage's local agent disregarded that income, replaced it with a lower figure, and then forwarded the application to the CitiMortgage underwriting department. This fictitious lower income figure prompted the underwriting department to treat the Schayes as riskier borrowers and therefore require them to pay a higher interest rate. Further, the underwriting department approved the Schayes for an adjustable-rate loan with a period of interest-only payments, rather than a fixed-rate loan. Before the loan closed, CitiMortgage told the Schayes that the loan product for which they had been approved was the only loan product for which they qualified, when in reality, their actual income would have qualified them for a better loan.

The Schayes and CitiMortgage closed this loan transaction on March 22, 2007. As is typical in real estate transactions, the Schayes executed a promissory note in favor of CitiMortgage, and also a deed of trust securing that note. The loan documentation included a second home rider, suggesting that this Arizona home was not the Schayes' primary residence. Various loan documents give a Florida residential address as the Schayes' mailing address.

The Schayes allege that their original loan documents were scanned and then destroyed to facilitate transferring and securitizing the Schayes' loan through the Mortgage Electronic Registration System, commonly known as MERS. MERS was named as a nominal beneficiary under the deed of trust, on behalf of CitiMortgage.

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Apparently through MERS, CitiMortgage eventually assigned the note and deed of trust to Defendant Pennymac Loan Servicing.

At some unspecified point, the Schayes fell behind on this loan, allegedly because they could not afford the adjustable-rate payments. On August 13, 2010, Defendant T.D. Service Company of Arizona, designated by MERS as a successor trustee under the deed of trust, noticed a trustee's sale to take place on November 17, 2010. On November 15, 2010, the Schayes learned for the first time (from a lawyer they hired to review their situation) that CitiMortgage had approved the Schayes' loan based on falsely deflated income.

On November 16, 2010, the Schayes filed suit in Maricopa County Superior Court against T.D. Service Company and Pennymac, asserting four causes of action. First, they accuse Pennymac and T.D. Service Company of "intentional misrepresentation," or common law fraud, based on CitiMortgage's scheme to ensure a higher interest rate on the Schayes' loan. The Schayes claim that Pennymac is liable for CitiMortgage's actions because Pennymac "had knowledge [of those actions] and is not a bona fide purchaser as the defects are on the face of the loan documents and documents are missing that indicate that concealment has taken place." (Compl. ¶ 37.) The Schayes do not explain how T.D. Service Company is liable for CitiMortgage's actions. Second, the Schayes accuse Pennymac of statutory consumer fraud (citing A.R.S. § 44-1521 et seq.), also based on the theory that CitiMortgage defrauded the Schayes, and that Pennymac can be liable because it knew of the fraud when it took the note. Third, the Schayes ask for an accounting from Pennymac and from non-party MERS. Finally, the Schayes assert a quiet title action against Pennymac, arguing that unspecified offsets "are greater in amount than the sum that would otherwise be due under the promissory note, and/or Plaintiffs are entitled to rescission of the promissory note and deed of trust such that Defendants claim to the property is released." (Compl. ¶ 56.) The Schayes claim significant economic damages, including at least $1.5 million in compensatory damages and at least $500,000 in emotional distress damages.

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The same day the Schayes filed their complaint, they moved for and were granted a temporary restraining order stopping the trustee's sale. The Superior Court set an evidentiary hearing regarding the propriety of a preliminary injunction for January 6, 2011. On December 13, 2010, Pennymac removed to this Court, claiming diversity jurisdiction. Pennymac asserts that the Schayes are Arizona residents (based on their ownership of the home at issue in this lawsuit), and that it and T.D. Service Company are California residents. Pennymac's notice of removal states, "undersigned counsel avers that no defendant has objected to removal." (Doc. 1 at 4.) On December 30, 2010, T.D. Service Company filed a notice of joinder in Pennymac's removal. Pennymac and T.D. Service Company (collectively, "Defendants") have now moved to dismiss, and the Schayes have simultaneously moved to remand.


A. Legal Standard

If a case filed in state court could have been filed in federal court, the defendant(s) in that case can sometimes remove it to federal court. 28 U.S.C. § 1441(b). "Could have been filed in federal court" is the most important prerequisite for removal, meaning that a federal court has original jurisdiction over the dispute. Original federal jurisdiction most commonly arises when the complaint raises an issue of federal law. 28 U.S.C. § 1331. However, if a lawsuit raises no issues of federal law (such as this one), district courts still have original jurisdiction over civil actions between citizens of different states where the amount in controversy exceeds $75,000 — so-called "diversity jurisdiction." 28 U.S.C. § 1332(a)(1).

State court cases that could have been filed in federal court as a diversity jurisdiction cases can be removed to federal court under the following conditions. First, no defendant can be a resident of the forum state. 28 U.S.C. § 1441(b). Second, a defendant must file a notice of removal within thirty days of receiving the plaintiff's complaint, and in any event, no later than one year after the action begins. Id. § 1446(b). Third, when a case involves multiple defendants, all defendants must consent to removal.

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Proctor v. Vishay Intertech. Inc., 584 F.3d 1208, 1225 (9th Cir. 2009). However, "the filing of a notice of removal [by one defendant] can be effective [as to all defendants] without individual consent documents on behalf of each defendant. One defendant's timely removal notice containing an averment of the other defendants' consent and signed by an attorney of record is sufficient." Id.

The removing party bears the burden of establishing federal subject matter jurisdiction. Emrich v. Touche Ross & Co., 846 F.2d 1190, 1195 (9th Cir. 1988). There is a strong presumption against removal jurisdiction. See Gaus v. Miles, Inc., 980 F.2d 564, 566 (9th Cir. 1992). If at any time before final judgment it appears that the district court lacks jurisdiction over a case removed from state court, the case must be remanded. 28 U.S.C. § 1447(c).

B. Analysis of Diversity Jurisdiction in this Case

1. Unanimity & Fraudulent Joinder

The Schayes argue that removal was improper because T.D. Service Company did not file a consent to removal until December 30, 2010 — more than 30 days after it received the complaint, thus violating the statutory requirement that all parties remove within 30 days. See 28 U.S.C. § 1446(b). Defendants counter that Pennymac's notice of removal sufficed for both Pennymac and T.D. Service Company. Pennymac is incorrect. The Ninth Circuit permits one defendant to remove on behalf of all defendants if that notice of removal states that all other defendants have consented to removal. Proctor, 584 F.3d at 1225. Pennymac's notice of removal, by contrast, says that "no defendant has objected to removal." This does not suffice. And even if failure to object could be considered consent in some circumstances, it would not apply in this case because Pennymac's notice of removal does not say whether it told T.D. Service Company that it intended to remove.


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