IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF CALIFORNIA
July 15, 2011
FEDERAL NATIONAL MORTGAGE ASSOCIATION, PLAINTIFF,
MICHAEL D. BAHAN, DEFENDANT.
This matter comes before the court upon plaintiff's motion to remand and for award of attorneys' fees and costs. (ECF 11.) For the following reasons, the court GRANTS plaintiff's motion to remand and DENIES plaintiff's motion for attorneys' fees and costs.
I. FACTS AND PROCEDURAL HISTORY
On April 14, 2011, plaintiff filed an action for unlawful detainer against defendant in the Superior Court of the State of California, County of Placer. Plaintiff alleged that defendant remains in unlawful possession of plaintiff's property located at 757 Deer Park Drive in Lincoln, California, in violation of Section 1161a of the California Code of Civil Procedure. (Compl. ¶¶ 1, 10, ECF 1.) This action was assigned case number MCV-0050607. (Notice of Removal ¶ 1, ECF 1.)
On April 25, 2011, defendant filed a Notice of Removal in this court. (Notice of Removal, ECF 1.) The Notice of Removal asserts plaintiff's action is properly removed to this court under 28 U.S.C. § 1331 (federal question jurisdiction) and 28 U.S.C. § 1441(b) (actions removable without regard to citizenship or residence of the parties). Specifically, the Notice argues that plaintiff's action is subject to this court's jurisdiction based on (1) plaintiff's alleged violation of federal law governing wrongful and fraudulent taking of property (Notice of Removal ¶ 4, ECF 1); (2) alleged denial of defendant's rights guaranteed by the Fifth and Fourteenth Amendments to the Constitution (id. ¶ 11); (3) plaintiff's alleged violation of statutes and regulations prohibiting securities fraud (id. ¶ 14); and (4) the "sue-and-be-sued" provision in plaintiff's federal charter (id. ¶ 15).
On May 13, 2011, plaintiff filed a Motion to Remand and Request for Attorneys' Fees and Costs. (Mot. to Remand, ECF 11.)
A. Motion to Remand
i. Legal Standard
District courts have original jurisdiction over "all civil actions arising under the Constitution, laws, or treaties of the United States." 28 U.S.C. § 1331. The federal removal statute provides that "any civil action brought in a State court of which the district courts of the United States have original jurisdiction, may be removed by the defendant or the defendants, to the district court of the United States for the district and division embracing the place where such action is pending." 28 U.S.C. § 1441(a).
In the Ninth Circuit, courts must "strictly construe the removal statute against removal jurisdiction." Gaus v. Miles, Inc., 980 F.2d 564, 566 (9th Cir. 1992) (per curiam) (citing Boggs v. Lewis, 863 F.2d 662, 663 (9th Cir. 1988); Takeda v. Northwestern Nat'l Life Ins. Co., 765 F.2d 815, 818 (9th Cir. 1985)). Furthermore, "[f]ederal jurisdiction must be rejected if there is any doubt as to the right of removal in the first instance." Id. (citing Libhart v. Santa Monica Dairy Co., 592 F.2d 1062, 1064 (9th Cir. 1979). This "'strong presumption' against removal jurisdiction means that the defendant always has the burden of establishing that removal is proper." Id. (citing Nishimoto v. Federman-Bachrach & Assocs., 903 F.2d 709, 712 n.3 (9th Cir. 1990); Emrich v. Touche Ross & Co., 846 F.2d 1190, 1195 (9th Cir. 1988)).
A defendant's ability to carry this burden is restricted by the "well-pleaded complaint rule," which dictates that "federal jurisdiction exists only when a federal question is presented on the face of the plaintiff's properly pleaded complaint." Caterpillar, Inc. v. Williams, 482 U.S. 386, 392 (1987). According to the Ninth Circuit, "the existence of federal jurisdiction depends solely on the plaintiff's claims for relief and not on anticipated defenses to those claims." ARCO Envtl. Remediation, L.L.C. v. Dep't of Health & Envtl. Quality, 213 F.3d 1108, 1113 (9th Cir. 2000). Indeed, "the federal issue 'must be disclosed upon the face of the complaint, unaided by the answer or by the petition for removal' " in order for a cause of action to be removed to federal court. California ex rel. Lockyer v. Dynegy, Inc., 375 F.3d 831, 838 (9th Cir. 2004) (citing Gully v. First Nat'l Bank, 299 U.S. 109, 112 (1936)).*fn1
There are three limited exceptions to the well-pleaded complaint rule allowing federal jurisdiction over an action originally based in state law, and thus supporting removal. These exceptions exist "where federal law completely preempts state law, where the claim is necessarily federal in character, or where the right to relief depends on the resolution of a substantial, disputed federal question." ARCO Envtl. Remediation, 213 F.3d at 1114 (internal citations omitted).
The court applies these standards to defendant's arguments below.
ii. Federal Law
Defendant contends that plaintiff's purchase of the dwelling where defendant resides fails to comply with a number of federal laws and regulations, including 15 U.S.C. § 1639, 12 U.S.C. § 2601, 15 U.S.C. § 1601, 15 U.S.C. § 1681 and 12 C.F.R. § 226 (known as "Regulation Z"). (Notice of Removal ¶¶ 4, 9, ECF 1.) Defendant does not argue or demonstrate that these laws preempt the sections of the California Code of Civil Procedure that plaintiff claims were violated. (See Notice of Removal ¶ 9, ECF 1.) Defendant also does not allege that plaintiff's original cause of action is simply an artfully concealed federal claim. See HSBC Bank USA, N.A. v. Hatchett, 2011 WL 776214, at *2 (C.D. Cal. Feb. 24, 2011) (relying on Sullivan v. First Affiliated Sec., 813 F.2d 1368 (9th Cir. 1987) in concluding that a Notice of Removal mentioning only a state cause of action "does not allege that the Complaint contains a federal claim in disguise"). Nor does defendant show that analysis of plaintiff's state-law unlawful detainer claim will necessarily turn on construction of the federal laws defendant claims plaintiff violated. See OneWest Bank FSB v. Ignacio, 2010 WL 2696702, at *2 (E.D. Cal. July 6) (concluding that an unlawful detainer claim based solely on state law "does not depend on the resolution of any question of federal law"), adopted, No. 2:10-cv-01683 (E.D. Cal. Aug. 18, 2010), ECF No. 5.
Defendant has not met any of the three exceptions to the well-pleaded complaint rule that would allow plaintiff's state claims to support federal jurisdiction.
iii. Constitutional Defenses
Defendant also argues the unlawful detainer process at issue violates defendant's Fifth and Fourteenth Amendment due process rights, providing grounds for jurisdiction. (Notice of Removal ¶¶ 11-13, ECF 1.) Neither the Fifth nor Fourteenth Amendment is mentioned on the face of plaintiff's state-law action, as required by the well-pleaded complaint rule. See Caterpillar, 482 U.S. at 392. While defendant's defenses grounded in these Amendments are federal, the defenses do not convert plaintiff's original complaint to one that "is necessarily federal in character." ARCO Envtl. Remediation, 213 F.3d at 1114 (citations omitted).*fn2
iv. Federal Securities Law
Defendant argues that this court has jurisdiction because plaintiff "at the very minimum" violated the Securities Exchange Act of 1934. (Notice of Removal ¶ 15, ECF 1.) Defendant also alleges plaintiff violated Sections 206(1), 206(2), and 206(4) of the Investment Advisers Act of 1940, which contain federal prohibitions against fraud by investment advisers (Notice of Removal ¶ 14, ECF 1), as well as Rule 206(4)-8, promulgated by the U.S. Securities and Exchange Commission "to clarify . . . the Commission's ability to bring enforcement actions under the Investment Advisers Act of 1940 against investment advisers who defraud investors in a hedge fund or other pooled investment vehicle." Id.; see 15 U.S.C. § 80b-6(1), (2) & (4) and 17 C.F.R. § 275.206(4)-8.
As noted above, "the existence of federal jurisdiction depends solely
on the plaintiff's claims for relief and not on anticipated defenses
to those claims." ARCO Envtl. Remediation, 213 F.3d at 1113. None of
the securities laws defenses falls within any of the narrow exceptions
to the well-pleaded complaint rule, and thus they all are insufficient
to create removal jurisdiction. See Vaden v. Discover Bank, 556 U.S.
49, __, 129 S. Ct. 1262, 1272 (2009) (holding that "[f]ederal
jurisdiction cannot be predicated on an actual or anticipated
Sue-and-be-sued Provision in Plaintiff's Charter
Finally, defendant argues that the "sue-and-be-sued" clause in
plaintiff's Congressional charter confers federal jurisdiction over
plaintiff's unlawful detainer claim. (Notice of Removal ¶ 15, ECF 1.)
The Federal National Mortgage Association's charter states that
plaintiff may "sue and be sued . . . in any court of competent
jurisdiction, State or Federal."
12 U.S.C. § 1723a(a). This charter language is often compared to the American Red Cross's federal charter, which states it may "sue and be sued in courts of law and equity, State or Federal, within the jurisdiction of the United States." 36 U.S.C. § 300105(a)(5). The United States Supreme Court has indicated that this kind of language could be read to confer federal jurisdiction on all actions to which a chartered entity is a party, so long as the charter "specifically mentions the federal courts." Am. Nat'l Red Cross v. S.G., 505 U.S. 247, 255 (1992). At least one circuit court has interpreted Red Cross categorically to hold that federal subject matter jurisdiction exists if a case implicates a sue-and-be-sued provision that "expressly refers to the federal courts in a manner similar to the Red Cross statute." Pirelli Armstrong Tire Corp. Retiree Med. Benefits Trust ex rel. Fed. Nat'l Mortg. Ass'n v. Raines, 534 F.3d 779, 784 (D.C. Cir. 2008).
While there is no Ninth Circuit decision directly on point, cases in this district have distinguished plaintiff's charter from the statute at issue in Red Cross. See Fed. Nat'l Mortg. Ass'n v. Bridgeman, 2010 WL 5330499 (E.D. Cal. Dec. 20, 2010), adopted, No. 2:10-cv-02619 (E.D. Cal. March 1, 2011), ECF No. 71; Fannie Mae v. Cabesas, 2011 WL 830145 (E.D. Cal. March 2), adopted, No. 2:10-cv-03125 (E.D. Cal. Apr. 21, 2011), ECF No. 12; Fed. Nat'l Mortg. Ass'n v. Sandoval, 2011 WL 976708 (E.D. Cal. March 16), adopted, 2011 WL 1674843 (E.D. Cal. May 2, 2011). In Bridgeman, the court reasoned that while "Section 1723a(a) permits Fannie Mae to be sued in federal court, the plain language of that statute requires that an independent basis for subject matter jurisdiction exist to sue Fannie Mae in federal court." 2010 WL 5330499, at *6. The court came to similar conclusions in Cabesas and Sandoval. See Cabesas, 2011 WL 830145, at *2 (endorsing a statutory construction of Fannie Mae's charter which "differentiat[es] between state and federal courts that possess 'competent' jurisdiction, i.e., an independent basis for jurisdiction, from those that do not" (citing Knuckles v. RBMG, Inc., 481 F. Supp. 2d 559, 563 (S.D.W.Va. 2007))); Sandoval, 2011 WL 976708, at *3 (reasoning that inclusion of the words "of competent jurisdiction" in plaintiff's charter "required an independent basis of jurisdiction, because to construe otherwise would render the emphasized language 'to be sued in any court of competent jurisdiction, State or Federal,' ineffectual" (citing Rincon del Sol v. Lloyd's of London, 709 F. Supp. 2d 517, 524 (S.D. Tex. 2010)) (emphases in original)).
The outcome is the same for charters that use language similar to plaintiff's. In Fed. Home Loan Bank of San Francisco v. Deutsche Bank Secs., Inc., 2010 WL 5394742 (N.D. Cal. Dec. 20, 2010), the Northern District of California examined legislation creating the Federal Home Loan Bank system, which allows for chartered banks "to sue and be sued . . . in any court of competent jurisdiction, State or Federal." See 12 U.S.C. § 1432(a). Reasoning that the Supreme Court's Red Cross rule established that "a sue-and-be-sued clause is necessary, but not sufficient, to confer [federal] jurisdiction," the Northern District concluded that actions against Federal Home Loan Banks may only be removed to federal court "if there is an independent basis for jurisdiction." Fed. Home Loan Bank, 2011 WL 5394742, at *7. The Northern District echoed the holdings of Cabesas and Sandoval on this question: "the [Bank charter's] 'competent jurisdiction' clause would be superfluous if it did not necessitate a separate jurisdictional grant." Id.
The analyses conducted by district courts in the Ninth Circuit are consistent with the reasoning employed by the Ninth Circuit in the analogous case of Doe v. Mann, 415 F.3d 1038 (9th Cir. 2005). In Mann, the Ninth Circuit held that a statute allowing Native Americans to petition "any court of competent jurisdiction" to challenge judicial termination of their parental rights "alone does not create subject-matter jurisdiction in the federal district court." Id. at 1045 (emphasis in original). Focusing on the statute's "any court of competent jurisdiction" terminology that is reflected in plaintiff's charter, the Ninth Circuit undertook to "determine whether the federal district court had jurisdiction from an independent source." Id. Mann supports the conclusion that a federal charter allowing an entity to sue and be sued in "any court of competent jurisdiction" cannot of itself create subject matter jurisdiction in the federal courts.
Here, the words "in any court of competent jurisdiction" in plaintiff's charter distinguish it from the Red Cross's charter, providing that the Red Cross may "sue and be sued in courts of law and equity, State or Federal, within the jurisdiction of the United States." Reading plaintiff's charter as conferring a level of federal jurisdiction equivalent to that conferred by the Red Cross's charter would nullify the words "of competent jurisdiction" in plaintiff's charter, 12 U.S.C. § 1723a(a), and violate the "canon of statutory construction that favors interpretations that give a function to each word in a statute." Scheidler v. Nat'l Org. for Women, Inc., 547 U.S. 9, 21 (2006).
The sue-and-be-sued provision in plaintiff's federal charter is insufficient to establish original jurisdiction in this court.
B. Motion for Attorneys' Fees and Costs
i. Legal Standard
The federal removal statute provides that "an order remanding the case may require payment of just costs and any actual expenses, including attorney fees, incurred as a result of the removal." 28 U.S.C. § 1447(c). The Supreme Court has limited courts' discretion in awarding attorneys' fees, absent "unusual circumstances," to cases in which "the removing party lacked an objectively reasonable basis for seeking removal." Martin v. Franklin Capital Corp., 546 U.S. 132, 141 (2005). When considering a motion to award fees alongside a motion to remand for lack of federal subject matter jurisdiction, "district courts retain discretion to consider whether unusual circumstances warrant a departure from the rule" that attorney's fees are to be awarded only where there was no objectively reasonable basis for a defendant to attempt removal. Id.
As discussed above, courts disagree as to whether sue-and-be-sued provisions in federal charters create federal jurisdiction over actions involving chartered entities, and there is no controlling Ninth Circuit precedent. Under these circumstances, it was not unreasonable for defendant to put forth an argument for federal jurisdiction based on the language of plaintiff's federal charter. The court's denial of removal jurisdiction does not mean defendant "lacked an objectively reasonable basis for seeking removal" in the first place. Martin, 546 U.S. at 141. The court declines to award attorneys' fees to plaintiff.
For the foregoing reasons, plaintiff's motion to remand to the state court is hereby
GRANTED. Plaintiff's motion for attorneys' fees and costs is DENIED.
Accordingly, IT IS HEREBY ORDERED that:
1. This case is hereby ordered remanded to the Superior Court of the State of California, County of Placer; and
2. This case is closed and all dates in this matter are vacated.