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Meza v. Matrix Servicing


January 25, 2010



Plaintiffs Ricardo V. Meza and Maricela Meza initially brought this action in state court alleging violations of the Real Estate Settlement Procedures Act ("RESPA"), 12 U.S.C. §§ 2601-2617; the Rosenthal Fair Debt Collection Practices Act ("RFDCPA"), Cal. Civ. Code §§ 1788.1-1788.33; and California's Unfair Competition Law ("UCL"), Cal. Bus. & Prof. Code §§ 17200-17210, as well as claims for fraud, breach of contract, breach of the implied covenant of good faith and fair dealing, negligence, breach of fiduciary duty, and wrongful foreclosure. Defendants subsequently removed the action to this court. Plaintiffs then filed a First Amended Complaint ("FAC") that no longer asserted any federal claims. The court now must decide whether this case should be remanded to state court in light of plaintiffs' FAC.

I. Factual and Procedural Background

On June 29, 2007, plaintiffs allege that they entered into a loan with Paramount to refinance plaintiffs' property at 8804 Bradbury Court, Elk Grove, California. (FAC ¶¶ 7, 49.) This loan was secured by a Deed of Trust on the property. (Id. ¶ 49.) The Deed of Trust listed Premier Trust Deed Services, Inc. as trustee and Paramount as Lender. (Id.) Plaintiffs further allege that they were never given a copy of any loan documents prior to closing and were not explained the meaning of the documents they signed at closing. (Id. ¶¶ 46-47.)

Plaintiffs were allegedly channeled into this loan on March 29, 2007, when Cotton approached plaintiffs and told them he could get them a 30 year fixed-rate loan, when in reality he sold plaintiffs an adjustable interest rate loan with a balloon payment. (Id. ¶¶ 38-40.) Cotton also allegedly overstated plaintiffs' income on their loan application and falsely classified plaintiffs as "subprime" borrowers, leading to their unfavorable loan terms. (Id. ¶¶ 41-43.)

An Assignment of the Deed of Trust was recorded in Sacramento County on December 6, 2007, which listed transferred the beneficial interest in the Deed of Trust to Option One. (Id. ¶ 51.) Plaintiffs eventually defaulted on the loan, and a Notice of Default and Election to Sell Under Deed of Trust was filed in Sacramento Country by National Default on April 7, 2009. (Id. ¶ 52.) On June 10, 2009, plaintiffs allegedly sent a Qualified Written Request ("QWR") to Matrix pursuant to RESPA, which allegedly requested servicing information from Martix and included a demand to rescind the loan under the Truth in Lending Act ("TILA"), 15 U.S.C. §§ 1601-1667f. (Id. ¶ 56.) The Deed of Trust was again assigned on September 3, 2009, this time from Option One to Marathon Trust. (FAC ¶ 54.) On October 6, 2009 National Default allegedly issued and recorded a Trustee's Deed Upon Sale, which identified Marathon as the foreclosing beneficiary and owner of the subject property. (Id. ¶ 55.)

Plaintiffs filed this action in state court on October 2, 2009. (Notice of Removal (Docket No 1).) On November 6, 2009, defendant Matrix Servicing*fn1 removed the action to this court, invoking the court's federal question jurisdiction, 28 U.S.C. § 1331, based upon plaintiffs' claim asserted under RESPA. (Id.) Matrix then moved to dismiss plaintiffs' Complaint pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon which relief can be granted. (Docket No. 8.) Before defendant's motion could be heard, however, plaintiffs filed the FAC on December 14, 2009. (Id. No. 19); see CRST Van Expedited, Inc. v. Werner Enters., Inc., 479 F.3d 1099, 1104 n.3 (9th Cir. 2007) ("A party may amend a pleading once as a matter of course before a responsive pleading is served. A Rule 12(b)(6) motion to dismiss is not such a responsive pleading as to cut off a plaintiff's right to amend once, without leave of court." (citations omitted)). Unlike plaintiffs' initial Complaint, the FAC does not assert a claim for violation of RESPA, although such a claim is still listed in the caption of the FAC. Rather, the FAC asserts only state law claims.

II. Discussion

"Under 28 U.S.C. § 1441, a defendant may remove an action filed in state court to federal court if the federal court would have original subject matter jurisdiction over the action." Moore-Thomas v. Alaska Airlines, Inc., 553 F.3d 1241, 1243 (9th Cir. 2009). Federal courts have original subject matter jurisdiction over "all civil actions arising under the Constitution, laws, or treaties of the United States." 28 U.S.C. § 1331.

"[J]urisdiction must be analyzed on the basis of the pleadings filed at the time of removal without reference to subsequent amendments . . . ." Chabner v. United of Omaha Life Ins. Co., 225 F.3d 1042, 1046 n.3 (9th Cir. 2000) (quoting Sparta Surgical Corp. v. Nat'l Ass'n of Sec. Dealers, 159 F.3d 1209, 1213 (9th Cir. 1998)). Nonetheless, when removal is based on federal question jurisdiction and all federal claims drop from the proceedings, "[i]t is generally within a district court's discretion either to retain jurisdiction to adjudicate the pendent state claims or to remand them to state court." Harrell v. 20th Century Ins. Co., 934 F.2d 203, 205 (9th Cir. 1991) (citing Price v. PSA, Inc., 829 F.2d 871, 876 (9th Cir. 1987)). A district court may consider sua sponte whether to remand pendent state claims to state court. Acri v. Varian Assocs., Inc., 114 F.3d 999, 1000-01 (9th Cir. 1997) (en banc).

When a complaint pleads only state causes of action, "original federal jurisdiction is unavailable unless it appears that some substantial, disputed question of federal law is a necessary element of one of the well-pleaded state claims, or that one or the other claim is 'really' one of federal law." Morongo Band of Mission Indians v. Cal. State Bd. of Equalization, 858 F.2d 1376, 1383 (9th Cir. 1988) (citing Franchise Tax Bd. of Cal. v. Constr. Laborers Vacation Trust for S. Cal., 463 U.S. 1, 13 (1983)).

Although plaintiffs' FAC no longer pleads any federal causes of action, it does make tangential references to federal statutes. (See FAC ¶¶ 50, 56, 81, 116-117.) However, it is a "long-settled understanding that the mere presence of a federal issue in a state cause of action does not automatically confer federal-question jurisdiction." Lippitt v. Raymond James Fin. Servs., 340 F.3d 1033, 1040 (9th Cir. 2003) (quoting Merrell Dow Pharm., Inc. v. Thompson, 478 U.S. 804, 808 (1986)). A substantial federal question does not exist simply because a complaint makes passing reference to a federal statute. Id. at 1040-41; see also Rains v. Criterion Sys. Inc., 80 F.3d 339, 344 (9th Cir. 1996) (references to Title VII are insufficient to establish federal jurisdiction in a wrongful termination action). Instead, the federal question must be "a necessary element of the well-pleaded state claim" or the plaintiff's right to relief must rely on the resolution of a substantial, disputed question of federal law. Lippitt, 340 F.3d at 1042.

All of plaintiffs' remaining claims have an independent basis in state law and can be resolved without any reference to federal statutes. This is fatal to the existence of federal jurisdiction, since "[t]he invocation of federal law as a basis for establishing an element of a state law cause of action does not confer federal question jurisdiction when the plaintiff also invokes a state constitutional provision or a state statute that can and does serve the same purpose." Rains, 80 F.3d at 345.

Moreover, only plaintiffs' negligence and UCL claims make reference to federal law. While plaintiffs' negligence claim mentions that "Matrix had a statutory duty to [p]laintiffs to properly respond to [p]laintiffs' Qualified Written Request pursuant to 12 U.S.C. § 2605(e), and to give [p]laintiffs notice of the transfer of servicing rights to their loan pursuant to 12 U.S.C. § 2605(c)," this claim does not depend on the breach of such alleged duty and could be established independently by proof that Matrix breached the "duty of care" that plaintiffs plead Matrix owed to them to take only payments and fees to which Matrix was entitled. (FAC ¶ 81.)

Similarly, the claim under the UCL does not require proof of a violation RESPA. Rather, plaintiffs only need to show that defendants engaged in a business practice that was unlawful or "unfair" because it offends an established public policy, is immoral, unethical, oppressive, injurious to customers, or unscrupulous. Wilmer v. Sunset Life Ins., 78 Cal. App. 4th 952, 964 (2000); People v. Casa Blanca Convalescent Homes, Inc., 159 Cal. App. 3d 509, 530 (1984).

The remainder of references to RESPA in plaintiffs' FAC appear to simply be vestiges of the original complaint that were not appropriately deleted upon amendment. While this may be sloppy pleading on the part of plaintiff, "[t]he appropriate punishment for bad pleading is the striking of surplusage, not removal to federal court where no remedy exists." Lippitt, 340 F.3d at 1041.

Since plaintiffs can prove all their claims independently under state law, an application of federal law is not a substantial or "necessary element" of the claims. See In re Countrywide Fin. Corp. Mortg. Marketing & Sales Practices Litig., No. 08md1998, 2008 WL 5450351, at *4 (S.D. Cal. Dec. 30, 2008) (finding no substantial federal question where TILA and RESPA did not need to be applied to resolve plaintiff's claims); Fardella v. Downey Sav. & Loan Ass'n, No. 00-4394, 2001 WL 492442, at *3 (N.D. Cal. May 9, 2001) (finding no federal question jurisdiction because plaintiff could prove allegedly unfair broker rebate violated California law independently of RESPA or TILA).

Under 28 U.S.C. § 1367(c), a district court "may decline to exercise supplemental jurisdiction . . . [if] the district court has dismissed all claims over which it has original jurisdiction." 28 U.S.C. § 1367(c). The court's discretion to decline jurisdiction over state law claims is informed by the values of judicial economy, fairness, convenience, and comity. Acri, 114 F.3d at 1001 (citations omitted). In addition, "[t]he Supreme Court has stated, and [the Ninth Circuit] ha[s] often repeated, that 'in the usual case in which all federal-law claims are eliminated before trial, the balance of factors . . . will point toward declining to exercise jurisdiction over the remaining state-law claims.'" Id. (quoting Carnegie-Mellon Univ. v. Cohill, 484 U.S. 343, 350 n.7 (1988)). Since the FAC lacks any independent basis for federal question jurisdiction, this court must now consider whether it is appropriate to exercise supplemental jurisdiction over plaintiffs' state claims even though all federal claims have been eliminated.

The court can find no justification for federal jurisdiction that would lead it to disregard the Supreme Court's warning that the balance of factors normally points toward declining to exercise jurisdiction over pendent claims after all federal claims have been eliminated from a complaint. Carnegie-Mellon, 484 U.S. at 350 n.7. Considerations of comity weigh heavily in favor of remand. All remaining claims arise under state law. There is no reason for this court to continue to hear this action when the state court is equally competent to hear the case and likely has a better grasp of the law of its own forum. The principle of comity therefore favors deference to the state court.

Concerns of judicial economy do little to sway the court to exercise jurisdiction. The court has not decided any substantive motions in this case and has had only minimal involvement in the matter thus far. There is no prevailing reason for this court to maintain jurisdiction to preserve judicial economy.

Finally, considerations of convenience and fairness do not weigh in favor of maintaining jurisdiction over this matter. Both the state and federal fora are located in Sacramento, only blocks from one another, making both equally convenient for the parties. As for fairness, there is no reason to doubt that the state court will provide an equally fair adjudication of the matter. In an exercise of discretion, the court finds that this action should be remanded to the state court from which it was removed.

IT IS THEREFORE ORDERED that this action be, and the same hereby is, REMANDED to Superior Court of the State of California in and for the County of Sacramento.*fn2

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