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Neal Foster v. Wells Fargo Bank

April 6, 2011


The opinion of the court was delivered by: Morrison C. England, Jr. United States District Judge


Through this action, Plaintiff Neal Foster ("Plaintiff") seeks redress for the alleged fraud and deceit of Defendants Wells Fargo Bank ("Wells Fargo"), Cal-Western Reconveyance Corporation ("Cal-Western"), and NDEX West ("NDEX") in connection with the trustee sale of a second mortgage to Plaintiff. Plaintiff originally filed his complaint in Yolo County Superior Court. Wells Fargo removed the action to this Court based on diversity jurisdiction. However, complete diversity between the parties opposed in interest does not exist.

It is fundamental that federal courts are courts of limited jurisdiction. Vacek v. United States Postal Serv., 447 F.3d 1141, 1145 (9th Cir. 2006). Regardless of whether the issue is raised by the parties, a district court has a duty to consider the basis of subject matter jurisdiction sua sponte. United Investors Life Ins. v. Waddell & Reed Inc., 360 F.3d 960, 966-67 (9th Cir. 2004). See also Fed. R. Civ. P. 12(h)(3). There is a "strong presumption" against removal jurisdiction, and the defendant bears the burden of establishing that removal is proper. Gaus v. Miles, Inc., 980 F.2d 564, 566 (9th Cir. 1992). As a result, defendants must affirmatively allege the basis of diversity jurisdiction in the notice of removal. Kanter v. Warner-Lambert Co., 265 F.3d 853, 857-58 (9th Cir. 2001). Diversity jurisdiction pursuant to 28 U.S.C. § 1332(a) requires complete diversity of citizenship between the parties opposed in interest. Kuntz v. Lamar Corp., 385 F.3d 1177, 1181 (9th Cir. 2004).

Wells Fargo concedes that both Plaintiff and Cal-Western are citizens of California. Consequently, if Cal-Western is a properly joined defendant, the Court lacks diversity jurisdiction. However, Wells Fargo contends that Cal-Western is fraudulently joined. A fraudulently joined party is ignored for purposes of diversity jurisdiction. Morris v. Princess Cruises, Inc., 236 F.3d 1061, 1067 (9th Cir. 2001). Joinder of a non-diverse defendant is deemed fraudulent if "the plaintiff fails to state a cause of action against a resident defendant, and the failure is obvious according to the settled rules of the state." Id.

There is a general presumption against fraudulent joinder, and the removing defendant has the burden to prove fraudulent joinder by clear and convincing evidence. Hamilton Materials, Inc. v. Dow Chemical Corp., 494 F.3d 1203, 1206 (9th Cir. 2007). Further, if there is a colorable claims against a party, joinder is not fraudulent. Charlin v. Allstate Ins. Co., 19 F. Supp. 2d 1137, 1140 (C.D. Cal. 1998) (quotations omitted). Doubtful questions of state law should be determined in state court. Id.

Plaintiff claims that Cal-Western, as a trustee of a deed of trust, fraudulently induced him to purchase a second mortgage at a trustee sale for $47,000. Specifically, Plaintiff alleges that Cal-Western represented that it was selling the real "property" in question, without disclosing that said property was subject to a first mortgage in the amount of $210,000. Wells Fargo asserts that the joinder of Cal-Western is fraudulent because a trustee, as a mere agent of the trustor and beneficiary, may not be held individually liable under California law. In support of its assertion, Wells Fargo cites Mercado v. Allstate Insurance Company for the proposition that an agent or employee is not individually liable as a defendant.*fn1 340 F.3d 824, 826 (9th Cir. 2003). Wells Fargo contends that, because Cal-Western was acting as a mere agent, and because an agent cannot be held individually liable, Plaintiff's claim against Cal-Western fails as a matter of law.

Wells Fargo's argument is ultimately unpersuasive because Mercado is distinguishable from the instant case. The holding of Mercado applies to typical employer-employee or agency relationships. It does not extend to shield a trustee of a deed of trust from individual liability. Similar to Mercado, a trustee of a deed of trust acts as a "kind of common agent for the trustor and the beneficiary." Hatch v. Collins, 225 Cal.App. 3d 1104, 1111 (Cal. Ct. App. 1990). However, such agency is passive, and for the limited purpose of conducting a sale in the event of default, or reconveying the property upon satisfaction of the debt.Id.

Further, in addition to the obligations of a common agent, a trustee has a duty to conduct a trustee sale "fairly, openly, reasonably, and with due diligence, exercising sound discretion to protect the rights of the mortgagor and others." Id. at 1112 (internal quotations omitted). Breach of said duty may give rise to a cause of action for professional negligence, breach of an obligation created by statute, or fraud. Id. at 1112-13. The duty extends to all participants of the sale, including prospective bidders. Baron v. Colonial Mortgage Service Co., 111 Cal. App. 3d 316, 324 (Cal. Ct. App. 1980). As a result of the unique obligations and duties of a trustee of a deed of trust, Mercado is inapplicable to the instant case.

Plaintiff alleges that Cal-Western committed fraud and deceit in connection with a trustee sale inducing him to buy an allegedly valueless second mortgage. Such a cause of action is not obviously defective according to the well settled rules of California.

Because Plaintiff has stated a colorable claim against Cal-Western, Wells Fargo cannot meet its burden to establish fraudulent joinder, and this Court lacks diversity jurisdiction.

Based on the foregoing, the case is hereby REMANDED to The Superior Court of the State of California, County of Yolo pursuant to 28 U.S.C. § 1447(c). The Clerk is ordered to close the case.

IT IS SO ...

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