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Sunil Wadhwa and Lynn Lori Wadhwa v. Aurora Loan Services

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF CALIFORNIA


June 16, 2011

SUNIL WADHWA AND LYNN LORI WADHWA, PLAINTIFFS,
v.
AURORA LOAN SERVICES, LLC, A SUBSIDIARY OF AURORA BANK, FSB; GREENPOINT MORTGAGE FUNDING, INC.; MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC.; AND DOES 1-10, INCLUSIVE, DEFENDANTS.

REQUEST FOR BRIEFING

Plaintiffs Sunil Wadhwa and Lynn Lori Wadhwa brought this action against defendants Aurora Loan Services, LLC, a subsidiary of Aurora Bank, FSB ("Aurora"), Greenpoint Mortgage Funding, Inc. ("Greenpoint"), and Mortgage Electronic Registration Systems, Inc. ("MERS"), arising out of defendants' allegedly wrongful conduct relating to a loan transaction and subsequent foreclosure on plaintiffs' home. The court will require plaintiffs to file a brief on the issue of whether the court has subject matter jurisdiction.

I. Procedural Background

On February 9, 2011, the court dismissed plaintiffs' original Complaint. (Feb. 9, 2011, Order (Docket No. 20).) On April 26, 2011, the court dismissed the federal claims in the First Amended Complaint ("FAC" (Docket No. 23)) without leave to amend and declined to exercise supplemental jurisdiction over the state law claims. (Apr. 26, 2011, Order (Docket No. 30).) In that Order, the court held that plaintiffs had failed to sufficiently allege diversity jurisdiction, as the FAC did not allege the citizenship of each party. (Id. at 11 n.3 (citing In re Mexico City Aircrash of Oct. 31, 1979, 708 F.2d 400, 404 n.4 (9th Cir. 1983) ("The essential elements of diversity jurisdiction, including the diverse residence of all parties, must be affirmatively alleged in the pleadings.")).) The court afforded plaintiffs leave to amend their state law claims to allege diversity jurisdiction. (Id. at 12:18-20.)

Plaintiffs then filed the Second Amended Complaint ("SAC" (Docket No. 32)), attempting to allege diversity jurisdiction.

II. Discussion "The federal courts are under an independent obligation to examine their own jurisdiction . . . ." FW/PBS, Inc. v. City of Dallas, 493 U.S. 215, 231 (1990). Federal courts have original subject matter jurisdiction over actions "where the matter in controversy exceeds the sum or value of $75,000" and the parties are completely diverse. 28 U.S.C. § 1332. For purposes of diversity jurisdiction, a corporation is "deemed to be a citizen of any State by which it has been incorporated and of the State where it has its principal place of business." 28 U.S.C. § 1332(c)(1). "The general rule . . . is that 'in a suit involving a subsidiary corporation, the court looks to the state of incorporation and principal place of business of the subsidiary, and not its parent.'" Danjaq, S.A. v. Pathe Communic'ns Corp., 979 F.2d 772, 775 (9th Cir. 1992) (quoting 1 James W. Moore et al., Moore's Federal Practice ¶ 0.77[2.-5] (2d ed. 1992)). This general rule applies even if the subsidiary corporation defendant is wholly owned by the non-party parent corporation. See, e.g., Schwartz v. Elec. Data Sys., Inc., 913 F.2d 279, 283 (6th Cir. 1990). "The only recognized exception to this rule is where the subsidiary is the alter ego of the parent corporation. Under these circumstances, courts view the formal separateness between the two corporations as merely a legal fiction." Danjaq, S.A., 979 F.2d at 775. Even if a subsidiary corporation is an alter ego of the parent corporation, a number of courts have narrowed the exception, allowing it only to increase, rather than decrease, the number of states in which the subsidiary corporation is a citizen. See, e.g., Panalpina Welttransport GmBh v. Geosource, Inc., 764 F.2d 352, 354 (5th Cir. 1985) ("[T]he alter ego doctrine cannot be used to preserve diversity jurisdiction by ignoring the place of incorporation of the subsidiary and treating the subsidiary as if it were only a citizen of the state of incorporation of the dominant corporation."); see also 15 James W. Moore et al., Moore's Federal Practice § 102.56[7][b] (3d ed. 2010) ("The attribution of the parent's citizenship to the subsidiary may expand, rather than supplant, the citizenship of the subsidiary.").

Here, in the SAC, plaintiffs allege that defendants Aurora and MERS are citizens of states other than California*fn1 and that the subject property in California is plaintiffs' "home." (SAC ¶¶ 1-3, 17.) However, plaintiffs do not allege the state of incorporation or principal place of business of defendant Greenpoint, the original lender.*fn2 Plaintiffs only allege that Greenpoint's parent, Capital One Financial Corporation, which is not a party to this action, is a Delaware corporation with its principal place of business in Virginia. (Id. ¶ 4.) However, the court looks to the citizenship of the subsidiary actually being sued, not the parent, for purposes of diversity jurisdiction. See Danjaq, S.A., 979 F.2d at 775.

Based on plaintiffs' failure to allege the state of incorporation and principal place of business of Greenpoint, the court doubts that it has subject matter jurisdiction.

IT IS THEREFORE ORDERED that, within seven days of the date of this Order, plaintiffs shall file a brief on the issue of whether the court has subject matter jurisdiction.


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