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Bradley Dehaven, Lisa Dehaven v. Jp Morgan Chase Bank


October 7, 2011



Plaintiffs Bradley and Lisa Dehaven filed this lawsuit against defendants JP Morgan Chase Bank, N.A., individually and as successor to Chase Home Finance LLC ("JP Morgan Chase"), The Bank of New York Mellon Trust Company, N.A. F/K/A The Bank of New York Trust Company, N.A., as Trustee for Chase Mortgage Finance Trust Series 2007-S4 ("Mellon"), First American Title Insurance Company dba First American Loanstar Trustee Services ("First American"), and Financial Hope for America ("Financial Hope") claiming wrongful foreclosure, intentional misrepresentation, intentional concealment, fraud, negligent misrepresentation, breach of fiduciary duty, and unlawful business practices in connection with the foreclosure on plaintiffs' residence located at 5015 Stirling Street, Granite Bay, California ("Stirling residence"). Currently before the court are JP Morgan Chase's motions to sever claims brought in plaintiffs' Second Amended Complaint ("SAC") against Financial Hope and First American and for judgment on the pleadings.*fn1

I. Factual and Procedural Background

In March 2007, plaintiffs obtained a refinance loan ("Subject Loan") on the Stirling residence through lender JP Morgan Chase. (Id. ¶ 24.) The Subject Loan's original servicer was Chase Home Finance LLC ("Chase Home"), who merged into JP Morgan Chase in 2011. (Ans. to SAC ¶ 4.) JP Morgan Chase is the successor to Chase Home. (Id.) A deed of trust was recorded March 30, 2007, naming Financial Title Company as trustee and JP Morgan Chase as beneficiary. (SAC ¶ 17, Ex. A.)

JP Morgan Chase securitized the Subject Loan and pooled it into the Chase Mortgage Finance Trust Series 2007-S4 in May 2007. (Id. ¶¶ 49-50.) Mellon is the trustee of Trust Series 2007-S4. (Id. ¶ 50.)

In January 2009, plaintiffs were experiencing financial difficulties, (id. ¶ 26), and called Chase Home to discuss modifications to the Subject Loan, (id. ¶ 28). They were told by several representatives that Chase Home could not modify the Subject Loan until plaintiffs missed three mortgage payments. (Id. ¶¶ 32-33.) Plaintiffs stopped making mortgage payments in February 2009 and submitted the materials required to apply for a loan modification. (Id. ¶¶ 35-36.)

After missing three mortgage payments, plaintiffs contacted Chase Home in April 2009 to inquire as to the status of their loan modification application and were told that the application was actively in review. (Id. ¶¶ 62, 65.) Plaintiffs were told the same thing in May 2009. (Id. ¶ 65.)

A Notice of Default of the Subject Loan was recorded May 19, 2009. (Id. ¶ 67.) When plaintiffs contacted Chase Home after the notice of default was recorded, Chase Home told them that their loan was in active review and that the Stirling residence would not be foreclosed on while the loan was under review. (Id. ¶ 69.) During June and July, plaintiffs remained in contact with Chase Home and were repeatedly told that their loan modification application was under active review. (Id. ¶ 73.) During this period, plaintiffs also began resubmitting the documents required for their modification application. (Id. ¶ 71.)

On June 22, 2009, a Substitution of Trustee was filed naming First American as Trustee for the Subject Loan. (Req. for Judicial Notice in Supp. of Mot. for J. on the Pleadings Ex. 1.) On July 2, 2009, an Assignment of Deed of Trust was recorded transferring beneficial interest in the Subject Loan to Mellon. (SAC ¶ 72.) On August 26, 2009, a Notice of Trustee's Sale was recorded. (Id. ¶ 74.)

According to JP Morgan Chase, Chase Home offered plaintiffs a forebearance plan in late August 2009 to which plaintiffs never responded. (Reardon Decl. ¶ 5, Ex. C.) Chase Home then sent plaintiffs a letter confirming their failure to accept the forebearance agreement by its stated deadline. (Id. ¶ 10, Ex. F) Plaintiffs deny that they ever received such an offer or letter. (SAC ¶ 115.)

Also in August 2009, plaintiffs enlisted Financial Hope to act for them in continued negotiations with Chase Home. (Id. ¶¶ 75-77.) Plaintiffs resubmitted their loan modification documents and informed Chase Home that Financial Hope was authorized to negotiate on their behalf. (Id. ¶¶ 76-77; Ans. to SAC ¶ 77.) Plaintiffs claim that they also informed Chase Home that they wished to be informed directly of any developments regarding the Subject Loan. (SAC ¶ 77.) JP Morgan Chase denies this allegation. (Ans. to SAC ¶ 77.)

Plaintiffs claim that Financial Hope remained in contact with Chase Home on their behalf from October 2009 through February 2010. (SAC ¶¶ 81-86.) During this period, Chase Home told Financial Hope that the Subject Loan was in review and that no foreclosure sale would occur while the loan was in review. (Id.) On March 3, 2010, Chase Home informed Financial Hope that the Subject Loan was no longer being considered for modification.

(Id. ¶ 89.) Plaintiffs claim that Financial Hope did not relay this information to them. (Id. ¶ 92.)

The Stirling residence was sold at foreclosure on April 14, 2010. (Id. ¶ 99.) On April 21, a Trustee's Deed Upon Sale was recorded that vested title in Mellon, as trustee for Chase Mortgage Finance Trust Series 2007-S4. (Id. ¶ 107; id. Ex. E.)

Plaintiffs, on their own behalf and through Financial Hope, contacted Chase Home in an attempt to negotiate a post-sale resolution. (Id. ¶¶ 108-126.) These negotiations lasted from April to November of 2010. (Id.) During that period, plaintiffs filed for bankruptcy. (Reardon Decl. Ex. J.)

On August 4, 2011, Chase Home closed plaintiffs' account and informed plaintiffs that their loan modification was denied. Plaintiffs filed this lawsuit in federal court on November 10, 2010. (Docket No. 1.)

Plaintiffs' original complaint named only JP Morgan Chase, Chase Home, and Mellon as defendants and claimed that this court had diversity jurisdiction under 28 U.S.C. § 1332. (Docket No. 1 ¶¶ 4-5, 10.) The Complaint was amended several times, first adding defendant First American (Docket No. 21 ¶ 5), and later defendant Financial Hope (Docket Nos. 41-42 ¶ 9). JP Morgan Chase stipulated to the filing of the Second Amended Complaint. (Docket No. 40.) At no point have plaintiffs raised any claims other than state law claims. (See Docket Nos. 1, 21, 41-42.)

Although plaintiffs and First American are both citizens of California, plaintiff's First Amended Complaint nonetheless claimed diversity jurisdiction. (Docket No. 21.)

After adding Financial Hope, another California citizen, plaintiffs dropped any mention of jurisdiction from their Complaint. (Docket Nos. 41-42.) Plaintiffs state that their Second Amended Complaint dropped First American as a named defendant, (Pl.'s Mem. of P. & A. in Opp'n to Chase Defs.' Mot. To Sever Claims at 1), however this is not the case, (Docket Nos. 41-42 ¶¶ 9, 130-150).

Because joinder of First American and Financial Hope destroys diversity among the parties and thereby divests this court of jurisdiction, JP Morgan Chase moves to sever claims against First American and Financial Hope. (Docket No. 48.) JP Morgan Chase also moves for judgment on the pleadings. (Docket No. 49.)

II. Discussion

A. Claims Against Financial Hope

Pursuant to Federal Rule of Civil Procedure 20(a)(2), a plaintiff may seek relief against multiple defendants in one action so long as (1) the plaintiff asserts "a right to relief arising out of the same transaction [or] occurrence and (2) some question of law or fact common to all the [defendants] will arise in the action." Coleman v. Quaker Oats Co., 232 F.3d 1271, 1296 (9th Cir. 2000); Fed. R. Civ. P. 20(a)(2). The permissive joinder rule "is to be construed liberally in order to promote trial convenience and to expedite the final determination of disputes, thereby preventing multiple lawsuits." League to Save Lake Tahoe v. Tahoe Reg'l Planning Agency, 558 F.2d 914, 917 (9th Cir. 1997).

Under Rule 20, the terms "same transaction or occurrence" refer to claims with similar factual backgrounds. Bautista v. Los Angeles Cnty., 216 F.3d 837, 843 (9th Cir. 2000) (citing Coughlin v. Rogers, 130 F.3d 1348, 1350 (9th Cir. 1997)). Those terms have also been interpreted as requiring that the claims have a "logical relation." Pena v. McArthur, 889 F. Supp. 403, 405 (E.D. Cal. 1994) (citing Mosley v. Gen. Motors, 497 F.2d 1330, 1333 (8th Cir. 1974)). All of plaintiffs' claims arise out their attempted modification the Subject Loan and share, at least in part, the same factual background. These claims are logically related to each other and arise out of the same transaction or occurrence.

Proper joinder also requires that some common question of fact or law arise in the claims to be joined. Plaintiffs' claims against Financial Hope and JP Morgan Chase involve distinct torts, but there are common questions of fact that will arise in the litigation of claims against both Financial Hope and JP Morgan Chase. For example, resolution of plaintiffs' claim for breach of fiduciary duty against Financial Hope will require a determination of the nature of the relationship between Financial Hope, Chase Home, and plaintiffs. Similar issues will arise in the litigation of plaintiffs' claims against Chase Home.

Under Rule 21 of the Federal Rules of Civil Procedure, even if the two prongs for permissive joinder are satisfied, a court may nonetheless sever certain parties if joinder would not "'comport with the principles of fundamental fairness' or would result in prejudice to either side." Coleman, 232 F.3d at 1296 (citing Desert Empire Bank v. Ins. Co. of N. Am., 623 F.2d 1371, 1375 (9th Cir. 1980)). In deciding whether severance is appropriate, relevant factors include possible prejudice to either party, judicial economy, and the reasons the non-moving party joined the claims. See Desert Empire, 623 F.2d at 1375; Pena, 889 F. Supp. at 407; Coleman, 232 F.3d at 1297. "A determination on the question of joinder of parties lies within the discretion of the district court." Wynn v. Nat'l Broad. Co., Inc., 234 F. Supp. 2d 1067, 1078 (C.D. Cal. 2002).

In Pena, the court severed claims brought by the plaintiff against a motorist he had been in an accident with and the plaintiff's insurance company. Pena, 889 F. Supp. at 407. The court was concerned that the insurance company would be prejudiced if the jury confused evidence showing the motorist's negligence with evidence of what the insurance company knew or should have known. Id. The court also worried that, if the claims remained joined together, evidentiary problems would result as it was likely that the motorist would object to the introduction of evidence the plaintiff would claim was critical to his case against the insurance company. Id. In another case where severance was found to be appropriate, the Ninth Circuit upheld a district court's decision to sever plaintiffs' claims in a discrimination case because of the possibility that the defendant would be prejudiced by having all ten plaintiffs testify in one trial. Coleman, 232 F.3d at 1296.

Unlike in Pena, litigating all claims in one proceeding here would not confuse the jury. Quite the opposite, it would give them a more complete understanding of the relevant facts. It would have the additional benefit of avoiding duplicative discovery and litigation.*fn2 JP Morgan Chase has also not shown that any feature of a joint proceeding, such as the evidentiary concerns in Pena or the repetitive testimony in Coleman, would prejudice its interests.

JP Morgan Chase has suggested that plaintiffs joined Financial Hope in an improper attempt to manipulate the choice of forum in order to delay the proceeding, and that this prejudicial delay is a reason to sever the claims against Financial Hope. In support of this argument, JP Morgan Chase points out that plaintiffs knew about Financial Hope's role in the attempted loan modification from the outset of the proceedings. It is not enough, however, to merely show that plaintiffs could have joined Financial Hope at the outset of the litigation. See O'Shea v. Epson Am., Inc., No. CV 09-8063, 2010 WL 4025627, at *4 (C.D. Cal. Oct. 12, 2010) (citing Howey v. U.S., 481 F.2d 1187 (9th Cir. 1973)) ("As the Ninth Circuit has stated, however, the mere fact that a party could have moved at an earlier time to amend its complaint [to add an additional defendant] does not by itself constitute an adequate basis for denying leave to amend."). Where the non-diverse defendant was "involved in the subject transaction" and severing claims would result in "two actions pending--one in state court and one in federal--which arise out of the same transaction or series of events," a defendant's "own suspicions of [a] plaintiff's improper motive" are not enough to require that claims be severed. Metzger v. Guardian Life Ins. Co., Inc., No. 96-2006, 1996 WL 511638, at *3 (N.D. Cal. Sep. 3, 1996).

Financial Hope is an appropriately joined party and separate proceedings against JP Morgan Chase and Financial Hope would cause judicial inefficiency. As neither party would be severely prejudiced by a joint proceeding, the court declines to sever claims against Financial Hope.

B. Jurisdiction

The Court "ha[s] an independent obligation to address sua sponte whether [it] has subject-matter jurisdiction." United States v. So. Cal. Edison Co., 300 F. Supp. 2d 964, 972 (E.D. Cal. 2004) (citing Dittman v. California, 191 F.3d 1020, 1025 (9th Cir.1999)). Plaintiffs bring only state law claims in this action. The action was filed in this court on the basis of diversity jurisdiction, 28 U.S.C. § 1332, but perfect diversity no longer exists. See Morris v. Princess Cruises, Inc., 236 F.3d 1061, 1067 (9th Cir. 2001) (citing Caterpillar Inc. V. Lewis, 519 U.S. 61, 68 (1996)). Accordingly, the court no longer has jurisdiction over this action and must dismiss it for lack of subject matter jurisdiction.


(1) Defendant's motion to sever claims against Financial Hope and First American be, and the same hereby is, DENIED;

(2) Plaintiff's Second Amended Complaint be, and the same hereby is, DISMISSED for lack of subject matter jurisdiction; and

(3) Defendants' motion for judgment on the pleadings is DENIED as moot.

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