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Tuttle v. Wells Fargo Bank N.A.

United States District Court, N.D. California

May 29, 2018

JASON TUTTLE, et al., Plaintiffs,
WELLS FARGO BANK, N.A., et al., Defendants.


          JOSEPH C. SPERO Chief Magistrate Judge


         This action was initially filed in state court. Plaintiffs Jason Tuttle and Mary Kathleen Tuttle assert several claims under California law pertaining to a pending foreclosure of the Tuttles' home in San Rafael, California against Defendants Wells Fargo Bank, N.A. (“Wells Fargo”), Wells Fargo Home Mortgage, [1] and Barrett Daffin Frappier Treder & Weiss LLP (“Barrett Daffin”). Wells Fargo removed to this Court asserting diversity jurisdiction under 28 U.S.C. § 1332, and contending that the Court should disregard Barrett Daffin as fraudulently joined and as a nominal defendant. The Tuttles move to remand, and the Court held a hearing on May 25, 2018. For the reasons discussed below, the Tuttles' motion is GRANTED, except as to their request for attorneys' fees, and this action is REMANDED to the California Superior Court for the County of Marin.[2] Because this Court lacks jurisdiction over the action, Wells Fargo's pending motion to dismiss is DENIED without prejudice to raising any arguments in state court.


         A. Allegations of the First Amended Complaint

         The Tuttles allege that on October 5, 2006, they refinanced their home mortgage with World Savings Bank, FSB, which was later acquired by Wells Fargo. 1st Am. Compl. (“FAC, ” dkt. 30) ¶¶ 20, 22. On March 17, 2017, Wells Fargo denied an application for loan modification, citing “the results of [the Tuttles'] net present value (NPV) evaluation.” Id. ¶¶ 24-25. According to the Tuttles, Wells Fargo failed to include required information in its denial letter and did not respond to a letter requesting that information. Id. ¶¶ 26-31. The Tuttles appealed the denial on April 13, 2017, but Defendants nevertheless recorded a notice of trustee's sale on January 5, 2018. Id. ¶¶ 30, 32. The Tuttles contend that they were and are well qualified for a loan modification. Id. ¶¶ 32-37, 44. A Wells Fargo representative acknowledged on February 12, 2018 that the Tuttles had a complete application pending and that Wells Fargo had not postponed the trustee's sale, then set for February 20, 2018. Id. ¶ 38. After the Tuttles received a temporary restraining order in state court, Wells Fargo rescheduled the sale for May 3, 2018, which remained the scheduled date at the time that the Tuttles filed their operative amended complaint. Id. ¶ 40. The Tuttles had not received a decision on the appeal of Wells Fargo's denial of their application at that time, and Wells Fargo had nevertheless failed to postpone the foreclosure sale further. Id. ¶¶ 42-43.

         The Tuttles bring five claims under state law. First, they assert that Defendants violated California Civil Code section 2923.6(c) because Wells Fargo has proceeded towards a foreclosure sale even though the Tuttles have a complete application for loan modification pending, and because Barrett Daffin has scheduled and proceeded towards the sale despite Wells Fargo's violation. Id. ¶¶ 45-55. Second, the Tuttles assert that Wells Fargo violated Civil Code section 2923.7 by failing to provide a single point of contact with access to someone with authority to stop foreclosure proceedings, and again assert that Barrett Daffin violated the same statute by proceeding towards foreclosure despite Wells Fargo's violation. Id. ¶¶ 56-60. Third, the Tuttles assert that Wells Fargo violated Civil Code section 2924.11 by proceeding towards a foreclosure sale while a modification application was pending and by failing to provide sufficient documentation supporting its denial letter. Id. ¶¶ 69-73. Once again, the Tuttles assert that Barrett Daffin violated the same statute by proceeding towards foreclosure despite Wells Fargo's violation. Id. ¶ 74. The Tuttles' fourth claim asserts that both Wells Fargo and Barrett Daffin violated California's Unfair Competition Law by virtue of the Civil Code violations addressed above, and their fifth claim is for negligence against Wells Fargo. Id. ¶¶ 76-90.

         B. Notice of Removal and Arguments Regarding Remand

         Wells Fargo removed to this Court on March 12, 2018, asserting diversity jurisdiction under 28 U.S.C. § 1332. See generally Notice of Removal (dkt. 1). Wells Fargo states that the parties are diverse because Jason Tuttle is a citizen of California[3] and Wells Fargo is a citizen of South Dakota, and that although Barrett Daffin is also a citizen of California, its citizenship should be disregarded because it is a nominal party and “no viable claim exists against [it].” Id. at 2-7. Wells Fargo contends that the duties of a trustee under a deed of trust are purely ministerial, and that Barrett Daffin's duties are privileged under California law absent a showing of malice. Id. at 5-7. Wells Fargo also contends that the amount in controversy exceeds $75, 000 and that removal was timely. Id. at 7-10.

         The Tuttles move to remand on the grounds that there is not complete diversity-because Barrett Daffin is a citizen of California-and that Wells Fargo has not met its burden to show fraudulent joinder. See generally Mot. to Remand (dkt. 32). The Tuttles note that the California Homeowner Bill of Rights (“HBOR”) provisions on which they base their claims specifically include a “trustee” as among the parties bound thereby, and that if a wrongful foreclosure sale actually occurs, a trustee can be held liable for actual economic damages. Id. at 8-9. The Tuttles contend that these statutes supersede any need to show actual malice under the common law. Id. at 9-10. The Tuttles cite a number of district court decisions holding that trustees were not fraudulently joined nominal parties in foreclosure cases, including this Court's decision in Rankankan v. JP Morgan Chase Bank, N.A., No. 16-cv-01694-JCS, 2016 WL 3411522 (N.D. Cal. June 22, 2016). Mot. to Remand at 10-12. The Tuttles request their costs and attorneys' fees because “removal was clearly improper, ” and submit a declaration from their counsel Nelson Goodell stating that he anticipates spending 9.4 hours working on the motion to remand and attending the hearing at a rate of $300 per hour, for a total request of $2, 820. Id. at 12-13; see generally Goodell Decl. (dkt. 32-1).

         Wells Fargo opposes remand, arguing that Barrett Daffin is fraudulently joined because its duties as trustee were narrow and it only acted as an agent of Wells Fargo, not in its own interest. Opp'n (dkt. 39) at 2-3. Wells Fargo cites a number of district court decisions remanding cases on the basis that trustee defendants were fraudulently joined-most, but not all, of which were decided before the HBOR became effective in 2013. Id. at 3-7 (citing, e.g., Ogamba v. Wells Fargo Bank, N.A., No. 2:17-cv-01754-KJM-AC, 2017 WL 4251124 (E.D. Cal. Sept. 26, 2017) (appeal pending); Marquez v. Wells Fargo Bank, N.A., No. C 13-2819 PJH, 2013 WL 5141689 (N.D. Cal. Sept. 13, 2013)). Wells Fargo does not distinguish or otherwise discuss the decisions cited by the Tuttles that reached the opposite conclusion. See generally Id. Wells Fargo also argues that Barrett Daffin's actions were privileged communications under the common interest privilege codified at sections 47(c) and 2924(d) of the California Civil Code. Id. at 5-6. Wells Fargo contends that even if the Court grants the motion to remand, this is not the sort of unusual case where attorneys' fees should be awarded. Id. at 7. Wells Fargo also erroneously asserts that the Tuttles failed to submit a declaration from counsel stating the fees incurred. Id.

         The Tuttles argue in their reply that the Ogamba court erred in applying a Rule 12(b)(6) analysis to the question of fraudulent joinder, and that that case should have been remanded under the more demanding standard that the Ninth Circuit has articulated for establishing fraudulent joinder. Reply (dkt. 45) at 4. According to the Tuttles, “the overwhelming majority of the recent case law holds that non-judicial foreclosure trustees that are accused of violating the California Homeowners Bill of Rights are not ‘fraudulently joined' parties.” Id. at 5 (citing district court decisions). The Tuttles contend that the “actual malice” standard is only necessary for a plaintiff to recover monetary damages from a trustee and is not necessary to obtain injunctive relief, which the Tuttles seek here. Id. at 5-6. The Tuttles also assert that Barrett Daffin has been actively involved in the foreclosure process, and refused to postpone the foreclosure sale even after being contacts by the Tuttles' attorney and apprised of the claims in this case, stating that it would only postpone the sale if Wells Fargo instructed it to. Id. at 6-7. In a second declaration, attorney Nelson Goodell states that despite Barrett Daffin's representation that it would postpone the sale at Wells Fargo's request, Wells Fargo sent the Tuttles an email on the scheduled day of the sale stating that it would postpone the sale, but Barrett Daffin nevertheless did not postpone the foreclosure sale until after the state court issued a temporary restraining order. See generally Goodell Reply Decl. (dkt. 45-1). The Tuttles state that they could amend their complaint to more clearly describe Barrett Daffin's involvement if necessary. Reply at 7.

         The Tuttles also respond to a footnote in which Wells Fargo noted that the Tuttles did not object to Barrett Daffin's declaration of non-monetary status in state court, citing a number of district court decisions holding that such declarations are not relevant to federal courts' analysis and arguing that even if such declaration could be relevant in this Court, it has no effect in this case, where Wells Fargo removed from state court before the time to object to the declaration of non-monetary status had expired. Id. at 10-12. The Tuttles also reiterate their argument that they are entitled to attorneys' fees. Id. at 12-13.

         Barrett Daffin has not addressed the motion to remand, but filed a notice of joinder in Wells Fargo's separate motion to dismiss the action, which the Court does not reach. See generally Joinder (dkt. 36). In that filing, Barrett Daffin asserts that a trustee is not liable for good faith performance of its duties related to foreclosure, even if its actions are erroneous. Id. at 4-5. According to Barrett Daffin, a plaintiff must show malice to prevail against a trustee, which “means the publication was motivated by hatred or ill will towards the plaintiff or [that] the defendant lacked reasonable grounds for belief in the truth of the publication and therefore acted in reckless disregard of the plaintiff's rights.” Id. at 5 (citing Kachlon v. Markowitz, 168 Cal.App.4th ...

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