United States District Court, N.D. California
September 8, 2005.
ADOLPHUS RAY MORGAN, WILLIAM B. HALL, SUSAN O. SWANSON, and BRENDA L. KNIGHT and EDWARD J. KNIGHT, suing individually and on behalf of all others similarly situated and on behalf of the general public, Plaintiffs,
AMERICAN INTERNATIONAL GROUP, INC., a Delaware corporation; AMERICAN GENERAL FINANCIAL SERVICES INC., a Delaware corporation; A.G. DOCUMENTATION SERVICES, INC., a California corporation; AMERICAN GENERAL FINANCE, a California corporation; AMERICAN GENERAL FINANCIAL SERVICES, a California corporation and DOES 1 through 10, inclusive, Defendants.
The opinion of the court was delivered by: MAXINE CHESNEY, District Judge
ORDER GRANTING PLAINTIFFS' MOTION FOR REMAND TO STATE COURT;
Before the Court is plaintiffs' motion to remand the
above-titled action to state court, pursuant to 28 U.S.C. §§ 1441
and 1447. Defendants have filed opposition, to which plaintiffs
have replied. Having reviewed the papers filed in support of and
in opposition to the motion, the Court deems the matter
appropriate for decision on the papers, VACATES the hearing
scheduled for September 9, 2005, and rules as follows. BACKGROUND
On July 21, 2004, Adolphus Morgan and William Hall
(collectively "Morgan") filed in state court a complaint ("Morgan
complaint) against defendant American International Group, Inc.,
a Delaware corporation, American General Finance, Inc., an
Indiana corporation ("AGF"), American General Finance
Corporation, an Indiana corporation, and American General
Financial Services, a California corporation ("AGFS California").
On August 6, 2004, Susan Swanson ("Swanson") filed in state court
a complaint ("Swanson complaint") against the same four
defendants, as well as American General Financial Services, Inc.
("AGFS Inc."), a Delaware corporation ("AGFS Delaware"), and
American General Finance, a California corporation.
Both complaints alleged state law claims on behalf of a class,
specifically persons who had loans originated by defendants
within the class period. In both pleadings, plaintiffs alleged
that defendants' practices constituted "predatory lending;" that
they regularly employ "misleading," and other "unfair tactics" to
lure borrowers into subprime loans on "unfavorable" terms; that
they "flip" financially struggling borrowers into larger and
larger loans, adding costs and origination fees; that they assess
"steep" prepayment penalties, which make it difficult for
borrowers to emerge from "disadvantageous" loans; and that they
"pack" loans with insurance products that are of little or no
value to the borrower but are highly profitable for defendants.
(See Morgan Compl. ¶¶ 13-25; Swanson Compl. ¶¶ 19-29.)
Defendant AGFS Delaware removed the Morgan complaint on August
9, 2004 and the Swanson complaint on September 20, 2004, alleging
that each complaint presented a federal question and that the
parties were completely diverse. Plaintiffs thereafter filed
motions to remand. In opposition thereto, defendants filed the
declaration of John Ebright ("Ebright"), a corporate officer of
AGFS Delaware, who represented that AGF and AGFS California, the
two named trustees, do not exist. (See Pls. Req. for Judicial
Notice, filed July 26, 2005, Ex. H ¶ 2.) According to Ebright,
those two entities had been "inadvertently" identified on certain
deeds of trust as the trustee, when, in fact, the true name of
the trustee was A.G. Documentation Services, Inc. ("AGDS"). See id.
On January 21, 2005, the Honorable Jeffrey S. White, the
district judge to whom both removed cases had been assigned,
granted plaintiffs' motions to remand. The state court
consolidated the two cases; thereafter, on June 17, 2005,
plaintiffs, pursuant to a court order, filed a Consolidated
Amended Complaint ("CAC"). As relevant herein, the CAC differs
from the Morgan and Swanson complaints in that plaintiffs added
AGDS as a defendant and Brenda and Edward Knight ("the Knights")
as plaintiffs. On July 8, 2005, defendants AGFS Delaware and AGDS
removed the case to federal court.
Defendants argue removal is proper, again asserting the
presence of a federal question, see 28 U.S.C. § 1441(b), and,
for the first time, asserting that the parties are minimally
diverse within the meaning of the recently-enacted Class Action
Fairness Act ("CAFA"), see 28 U.S.C. § 1332(d).
A. Minimal Diversity Under CAFA
Under CAFA, a defendant may remove a class action complaint if
the parties are minimally diverse and the amount in controversy,
in the aggregate, exceeds five million dollars. See
28 U.S.C. §§ 1332(d)(2), 1441(a). CAFA "appl[ies] to any civil action
commenced on or after" February 18, 2005. See note following
28 U.S.C. § 1332, 119 Stat. 4. Consequently, "[f]or a civil litigant
to secure federal jurisdiction under CAFA, the case must have
`commenced' on or after the law's enactment date." See In re
Expedia Hotel Taxes and Fees Litigation, 377 F. Supp. 2d 904,
905 (W.D. Wash. 2005). In the Ninth Circuit, district courts
"have found that in removal cases, `commencement' is governed by
the law of the state in which the action originated." See id.
at 906 (citing cases) (internal quotation omitted). Under
California law, a civil action "is commenced by filing a
complaint with the court." See Cal. Code Civ. Proc. § 411.10.
Here, plaintiffs argue, the action commenced in 2004, when
plaintiffs filed the Morgan and Swanson complaints in state
court. In response, defendants assert that because plaintiffs, on
June 17, 2005, amended the complaints to include newly-named parties, plaintiffs "commenced" a new action on that date.
Defendants argue that plaintiffs, by including AGDS in the CAC,
have commenced a new action, as defined by CAFA.
As noted, for purposes of removal, state law determines when a
party "commences" an action. State law likewise determines
whether an amendment of a pleading relates back to the date of
the original pleading. See Fed.R.Civ.P. 15(c). Under
California law, a court may "allow a party to amend any pleading
or proceeding by adding or striking out the name of any party, or
by correcting a mistake in the name of a party." See Cal. Code
Civ. Proc. § 473(a)(1). As a "general rule," an amendment that
adds a new defendant does not relate back to the date of the
original complaint. See Woo v. Superior Court,
75 Cal. App. 4th 169, 176 (1999); see also Adams v. Federal Materials
Co., Inc., 2005 WL 1862378 (W.D. Ken. 2005) (holding where
plaintiffs added new defendant after enactment of CAFA, amendment
did not relate back and plaintiffs thus commenced new action
against that defendant). When, however, an amendment corrects a
"misnomer," California law recognizes an exception and allows the
amendment to relate back to the original complaint. See
Diliberti v. Stage Call Corp., 4 Cal. App. 4th 1468, 1470
(1992) ("[T]he allowance of amendment and relation back . . .
does not depend on whether the parties are technically or
substantially changed; rather the inquiry is as to whether the
nature of the action is substantially changed."); see, e.g.,
Hawkins v. Pacific Coast Building Products, Inc.,
124 Cal. App. 4th 1497, 1505 (2004) (allowing plaintiff to substitute true name
of corporate entity, after statute of limitations had run, where
plaintiff had originally sued that entity under fictitious name).
Here, plaintiffs state they included AGDS in the CAC as a
result of defendants' having notified them that the original
complaints named two nonexistent entities as trustees, because
the actual trustee had been misnamed in the loan documents. By
adding AGDS, plaintiffs did not "substantively change" the nature
of the action, see Diliberti, 4 Cal. App. 4th at 1470, but
merely corrected a "misnomer," see id. Indeed, as defendants conceded when opposing the prior motions to remand, errors in
defendants' documentation were the cause of plaintiffs' confusion
as to the true name of the trustee. (See Pls. Req. for Judicial
Notice, filed July 26, 2005, Ex. H ¶ 2.) In other words, from the
time plaintiffs filed their original complaints, plaintiffs have
named the trustee as a defendant, and, at most, they used the
wrong name in identifying that entity.*fn1 Consequently, the
claims against AGDS relate back to the filing of the original
Accordingly, the inclusion of AGDS in the CAC did not
"commence" a new action for purposes of CAFA.*fn2
2. The Knights
Defendants argue that the Knights have brought claims against
defendants for the first time, thus "commencing" an action.
Under California law, "where an amendment is sought . . . the
amended complaint will be deemed filed as of the date of the
original complaint provided recovery is sought in both pleadings
on the same general set of facts." Austin v. Massachusetts
Bonding & Insurance Co., 56 Cal. 2d 596, 600 (1961). "Even where
new plaintiffs are substituted or added . . ., the same rule
applies," Jensen v. Royal Pools, 48 Cal. App. 3d 717, 721
(1975), provided the new party does not seek "to enforce an
independent right," see Bartolo v. Superior Court,
51 Cal. App. 3d 526, 533 (1975). Here, plaintiffs do not allege on behalf
of the Knights a claim "independent" of that of the putative
class, but, rather, assert the same claims alleged by the class
representatives named in the original complaints. In other words,
both Morgan and Swanson, by asserting claims on behalf of the
class in their original complaints, asserted the Knights's claims as well. Put
another way, defendants face the same claims in the CAC as they
did before the enactment of CAFA.
The Seventh Circuit aptly summarized the distinction between an
amendment that "counts" under CAFA and one that doesn't when it
observed: "[A] new development in a pending suit no more
commences a new suit [under CAFA] than does its removal." See
Knudsen v. Liberty Mutual Insurance Co., 411 F. 3d 805, 806
(7th Cir. 2005). "Plaintiffs routinely amend their complaints,
and proposed class definitions, without any suggestion that they
have restarted the suit for a restart (like a genuinely new
claim) would enable the defendant to assert the statute of
limitations." Id. In short, the inclusion of the Knights as
additional class representatives is a "development" that does not
"restart" the action.
Accordingly, the inclusion of the Knights did not "commence" a
new action for purposes of CAFA.
B. Federal Question Jurisdiction
In their motion for remand, plaintiffs point out that Judge
White previously ruled that plaintiffs' claims do not present a
federal question. Defendants, in their opposition, do not
articulate any reason for reconsideration of Judge White's
finding. Indeed, defendants acknowledge "that the circumstances
pertinent to the federal question ground for removal have not
changed since [Judge White's ruling]." (See Defs. Opp'n at
19:6-7.) Consequently, the Court declines to reconsider Judge
White's finding that no federal question exists, and,
accordingly, finds that remand is appropriate for lack of subject
matter jurisdiction under 28 U.S.C. § 1447(c).
For the reasons stated, plaintiffs' motion for remand is hereby
GRANTED, and the matter is REMANDED to the Superior Court of the
State of California, in and for the County of Alameda.
IT IS SO ORDERED.
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