Warner v. Select Portfolio Servicing

          Present: The Honorable ANDREW J. GUILFORD JUDGE.

          ORDER REMANDING CASE

          HON. ANDREW J. GUILFORD JUDGE.

         Plaintiffs Sheila and Richard Warner sued two Defendants in California state court: Select Portfolio Servicing, Inc. ("SPS") and U.S. Bank National Association, as trustee, on behalf of the holders of the Asset Backed Securities Corporation Home Equity Loan Trust, Series AEG 2006-HE1 Asset Backed Pass-Through Certificates, Series AEG 2006-HE1 ("U.S. Bank"). The Warners asserted eight claims related to a home loan they got. SPS and U.S. Bank removed the case to federal court.

         The Court REMANDS this case and VACATES all other pending matters.

         1. LEGAL STANDARD

         Before getting into an analysis of these facts, it's important to understand subject matter jurisdiction generally and diversity jurisdiction specifically, as well as how the sham defendant doctrine fits into all this.

         1.1 Subject Matter Jurisdiction Generally

         The Constitution confines federal courts' power to rule to certain subject matters. See U.S. Const. art. III, § 2. Courts themselves police their exercise of power. They take this sacred duty seriously and guard their limited jurisdiction jealously. See Abramson v. Marriott Ownership Resorts, Inc., No. SACV 15-0135 AG (JCGx), F.Supp. 3d, 2016 WL 105889, at *1 (C.D. Cal. Jan. 4, 2016).

         This jealousy gets expressed in a lot of ways. The Court has discussed these ways before, but repeats them here. See Onsite Nurse Concierge LLC v. Myonsite Healthcare, LLC, No. SACV 16-0509 AG (PLAx), 2016 WL 2853504, at *1 (C.D. Cal. May 16, 2016). First, federal courts start off assuming that cases are outside of their power to rule. Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377 (1994). Courts require parties arguing for jurisdiction to establish otherwise. Id. Second, federal courts demand that parties arguing for jurisdiction address jurisdiction as soon as they get to the federal courthouse doors, in their complaints or notices of removal. See Fed. R. Civ. P. 8(a)(1); 28 U.S.C. § 1446(a). Third, federal courts raise jurisdiction whenever they think it's a question, at any point in a case, on their own without the parties' involvement. See Fed. R. Civ. P. 12(h)(3). Fourth, federal courts are particularly skeptical of cases removed from state court. Gaus v. Miles, Inc., 980 F.2d 564, 566 (9th Cir. 1992).

         Consistent with courts' jealousy, ties go to plaintiffs. The strong presumption against removal jurisdiction means that defendants always have the burden of establishing that removal is proper. See Id . Courts "strictly construe the removal statute against removal jurisdiction, " so "[f]ederal jurisdiction must be rejected if there is any doubt" about jurisdiction. Id.

         1.2 Diversity Jurisdiction Specifically

         One particular flavor of subject matter jurisdiction, diversity jurisdiction, is relevant here. Diversity jurisdiction allows federal courts to rule in civil actions between citizens of different states where the matter in controversy exceeds $75, 000. See 28 U.S.C. § 1332(a). Further, diversity jurisdiction requires that each plaintiff in a case be a citizen of a different state than each defendant-in other words, that there be complete diversity. See id.; Abramson, 2016 WL 105889, at *1.

         1.3 The Sham Defendant Doctrine

         The sham defendant doctrine-sometimes labeled as fraudulent joinder-is also implicated here. A defendant trying to get into federal court will often argue that a party the plaintiff brought into the lawsuit was only included to prevent potential or destroy existing diversity in a case where diversity jurisdiction might otherwise exist. For a defendant to succeed on this argument, the defendant must convince the court that after resolving "all disputed questions of fact and all ambiguities in the controlling state law . . . in the plaintiff's favor, the plaintiff could not possibly recover against the party whose joinder is questioned." Padilla v. AT&T Corp., 697 F.Supp.2d 1156, 1158 (C.D. Cal. 2009). The failure to state a claim against the non-diverse defendant must be "obvious according to the well-settled rules of the state." United Computer Sys. v. AT&T Corp., 298 F.3d 756, 761 (9th Cir. 2002). If a defendant is persuasive, the court is ...