Case: 10-20735 Document: 00511552915 Page: 1 Date Filed: 07/27/2011
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
July 27, 2011
No. 10-20735 Lyle W. Cayce
Clerk
TIMOTEO CUEVAS; EVA CUEVAS,
Plaintiffs–Appellees
v.
BAC HOME LOANS SERVICING, LP; COUNTRYWIDE HOME LOANS OF
TEXAS INCORPORATED; COUNTRYWIDE HOME LOANS,
INCORPORATED
Defendants–Appellants
Appeal from the United States District Court
for the Southern District of Texas
Before DAVIS, PRADO, and OWEN, Circuit Judges.
EDWARD C. PRADO, Circuit Judge:
Defendants–Appellants BAC Home Loans Servicing, LP (formerly known
as Countrywide Home Loans Servicing, LP); Countrywide Home Loans of Texas,
Incorporated; and Countrywide Home Loans, Incorporated appeal an order for
remand. The district court dismissed the lone federal claim under the Truth in
Lending Act (“TILA”), and declined to exercise supplemental jurisdiction over
the remaining state law claims. The defendants argue that this was an abuse
of discretion because Countrywide Home Loans of Texas was improperly joined
and thus the district court had diversity jurisdiction over the state law claims.
Plaintiffs–Appellees Timoteo and Eva Cuevas argue that there was no improper
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No. 10-20735
joinder and that the defendants waived any right to argue improper joinder or
the existence of diversity jurisdiction when they failed to remove the action to
federal court within thirty days of service of the original complaint that listed
Countrywide Home Loans of Texas. The defendants disagree and argue that
once the district court properly assumed removal jurisdiction over the federal
claim, the exercise of diversity jurisdiction over the state law claims was
mandatory.
We reverse and remand. The defendants carried their burden of proving
improper joinder; the district court had diversity jurisdiction over the state law
claims at the time of remand, and the exercise of that jurisdiction was
mandatory.
I. FACTUAL AND PROCEDURAL BACKGROUND
The Cuevases are citizens and residents of Texas. BAC Home Loans
Servicing, LP is a citizen of North Carolina, the state of citizenship of its limited
partners. Countrywide Home Loans, Inc. is a New York corporation with its
principal place of business in California. Countrywide Home Loans of Texas is
a Texas corporation.
The Cuevases owned a home in Porter, Texas. They financed the purchase
of their home using a loan from the defendants. On January 21, 2009, a
Countrywide entity sent the Cuevases a letter informing them of their default
and offering them the opportunity to cure the default by paying the amount
owed, $4,173.48, by February 20, 2009. The Cuevases allege that they mailed
a cashier’s check for the full amount by the stated deadline, but that the
defendants wrongfully refused to accept the tendered payment. The Cuevases
allege that they continued to communicate with the defendants and made good-
faith attempts to cure their default status, but that the defendants began
foreclosure proceedings and sold the house without providing notice. The
Cuevases further allege that the defendants purchased the home at the
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foreclosure sale and subsequently offered to sell the Cuevases their own home
at a profit.
On April 29, 2009, the Cuevases sued the defendants in Texas state court
for wrongful foreclosure, alleging only state law claims under the Texas
Deceptive Trade Practices Act (“DTPA”), the Texas Debt Collection Practices Act
(“DCPA”), and a variety of common law theories including negligence,
unreasonable collection efforts, fraud, fraudulent inducement, and slander of
title. On December 18, 2009, the plaintiffs filed an amended petition raising a
claim under the TILA, codified at 15 U.S.C. §§ 1601–1667f.
Despite the fact that the defendants were on notice as of April 29, 2009,
that Countrywide Home Loans of Texas was listed as a defendant in the original
petition, the defendants did not remove this case to federal district court until
January 5, 2010. They removed the case to the federal court under federal
question and diversity jurisdiction. They asserted that the district court had
diversity jurisdiction because the amount in controversy exceeded $75,000 and
because all of the parties in interest were diverse. The defendants argued that
Countrywide Home Loans of Texas’s presence in the lawsuit did not destroy
diversity jurisdiction because that defendant was fraudulently joined. They
asserted that the Cuevases had no reasonable possibility of recovering from
Countrywide Home Loans of Texas because (1) all of the allegations in the
petition arise from the servicing of the loans and Countrywide Home Loans of
Texas never serviced the loans, and (2) Countrywide Home Loans of Texas was
an inactive corporation at all times relevant to the litigation. On January 14,
2010, the defendants also filed a Rule 12(b)(6) motion to dismiss the Cuevases’
amended petition for failure to state a claim upon which relief could be granted.
On January 20, 2010, the Cuevases filed a motion to remand. The
Cuevases argued that the district court could not exercise removal jurisdiction
based on diversity jurisdiction because (1) the defendants’ notice of removal was
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not filed within thirty days of service of the original complaint—the date on
which the defendants learned or should have learned that the Cuevases
allegedly joined Countrywide Home Loans of Texas improperly; and (2) the
defendants failed to carry their burden of proving the joinder was improper.
On September 27, 2010, the district court issued an opinion and order
granting in part and denying in part the defendants’ motion to dismiss and
granting the Cuevases’ motion to remand.1 The district court first addressed
whether it had removal jurisdiction. It held that it did not have removal
jurisdiction based on diversity because the defendants had failed to prove
improper joinder of Countrywide Home Loans of Texas. The district court found
that Countrywide Home Loans of Texas was in existence and active for the
purpose of originating loans and that the complaint did not distinguish between
originating and servicing the home loan. Consequently, the district court found
that the defendants had failed to carry their burden of proving that there was
no reasonable basis by which the Cuevas could recover against Countrywide
Home Loans of Texas. Further, the district court found that the defendants’
notice of removal under diversity jurisdiction was untimely because they failed
to remove the case within thirty days of April 29, 2009, the date on which they
were served with the Cuevases’ original complaint listing Countrywide Home
Loans of Texas as a party. The district court then held that it nevertheless had
removal jurisdiction over the action because the complaint alleged a federal
1
The district court erred when it stated that it was granting the Cuevases’ motion to
remand. In the opinion and order, the district court clearly found that removal to the federal
district court was proper because there was federal jurisdiction over the TILA claim and
supplemental jurisdiction over the state law claims. Thus, when it remanded the state law
claims after dismissing the TILA claim, it was not remanding the case on the basis of any
defect identified in a motion for remand filed within thirty days of the notice of removal. See
28 U.S.C. § 1447(c). Instead, the district court remanded the case using its discretion under
28 U.S.C. § 1367(c) and declined to exercise supplemental jurisdiction over the state law
claims after dismissing the only claim over which it found it had original jurisdiction.
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claim under TILA and the state law claims derived from a common nucleus of
operative facts.
The district court then granted the defendants’ Rule 12(b)(6) motion in
part. The district court dismissed the TILA claim, finding that the Cuevases had
failed to plead any facts to support it. Finally, having dismissed the federal
claim, the district court declined to exercise supplemental jurisdiction over the
state law claims and remanded the action to Texas state court. The defendants
timely appealed the grant of the motion to remand. The Cuevases did not appeal
the dismissal of the TILA claim.
II. DISCUSSION
On appeal, the parties do not dispute that the district court had federal
question jurisdiction to consider the TILA claim and supplemental jurisdiction
over the state law claims at the time of the remand. The issues on appeal
concern whether the district court was obligated to retain jurisdiction and hear
the case after it dismissed the federal claim because diversity jurisdiction existed
over the state law claims. The defendants argue that the district court abused
its discretion in remanding the state law claims because (1) Countrywide Home
Loans of Texas was improperly joined; (2) the defendants’ waiver of any right to
a federal forum because of their failure to remove for diversity within thirty days
of being served with the initial complaint became irrelevant once the district
court properly had removal jurisdiction over all of the claims under federal
question and supplemental jurisdiction; and (3) the exercise of diversity
jurisdiction over the state law claims was mandatory once the district court had
properly assumed removal jurisdiction. The Cuevases argue that there was no
improper joinder and that the defendants waived any right to argue improper
joinder or the existence of diversity jurisdiction when it failed to remove the
action to federal court within thirty days of service of the initial original
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complaint that listed Countrywide Home Loans of Texas. We agree with the
defendants, and reverse and remand the action to the district court.
A. Standard of Review
Though we typically cannot review an appeal of an order remanding a case
to state court, we have jurisdiction to do so when the decision to remand is based
“on an affirmative exercise of discretion rather than on a finding of lack of
jurisdiction.” Adair v. Lease Partners, Inc., 587 F.3d 238, 240 (5th Cir. 2009).
“Whether a district court has the discretion to remand a case to state court is a
legal question this court reviews de novo.” Id. If the district court did have
discretion to remand the case, we review the decision to remand for an abuse of
discretion. Id. “All issues of subject matter jurisdiction, including whether a
party is improperly joined, are questions of law reviewed de novo.” Gasch v.
Hartford Accident & Indem. Co., 491 F.3d 278, 281 (5th Cir. 2007).
B. Discretion to Remand and the Effect of Waiver of Right to Remove
The issue of whether a party’s previous failure to argue fraudulent joinder
and timely remove the case on the basis of diversity jurisdiction affects the
district court’s authority to remand state law claims after the case has been
properly removed to district court is res nova in this Court and our sister courts
of appeals. In Buchner v. Federal Deposit Insurance Corporation, a case
examining whether remand was proper after a party had waived its right to
removal on the basis of federal question jurisdiction, we stated that “the ability
of a party to remove a case and the ability of a court to remand a case that has
been properly removed by a party are distinct concepts not necessarily subject
to the same rules.” 981 F.2d 816, 818 (5th Cir. 1993). “Unquestionably, a party
may implicitly waive its right to remove a case by failing timely to file a notice
of removal.” Id. “Likewise, a party may implicitly waive its right to contest the
removal of a case on procedural grounds by failing timely to move for remand.”
Id.
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Once the district court has assumed jurisdiction over a properly removed
case, however, whether a party had previously waived its right to a federal
forum at some earlier point in the litigation by failing to timely remove is
irrelevant to the determination of whether the district court can or should
remand the action. See id. The district court’s authority to remand the case to
state court depends on the nature of the district court’s jurisdiction over the
claims that comprise the case at the time of the remand. Id.; Adair, 587 F.3d at
240.
“When the federal court has original subject-matter jurisdiction over a
claim, that jurisdiction is ‘not discretionary with the district court’ and ‘can
neither be conferred nor destroyed by the parties’ waiver or agreement.’” Adair,
587 F.3d at 241 (quoting Buchner, 981 F.2d at 820–21). If the district court only
has supplemental jurisdiction over the claim, Congress has granted authority to
the district court to adjudicate the claim or remand the claim based on the
court’s discretion. Id. (citing 28 U.S.C §§ 1367(c), 1441(c)). Thus, we must
examine whether the district court had diversity jurisdiction over the state law
claims at the time of the remand.
C. Diversity Jurisdiction and Improper Joinder
The district courts have original jurisdiction of civil actions where the
matter in controversy exceeds the sum or value of $75,000, exclusive of costs and
interest, and is between citizens of different states. 28 U.S.C. § 1332. It is
undisputed that the matter in controversy exceeds $75,000; thus whether
diversity jurisdiction exists over the state law claims hinges on whether
Countrywide Home Loans of Texas’s presence in the action destroyed diversity.
In their notice of removal and their response to the Cuevases’ motion to remand,
the defendants argued that there was no reasonable basis for the Cuevases to
recover from Countrywide Home Loans of Texas because (1) the entity never
serviced the Cuevases’ Home Loans, and (2) Countrywide Home Loans of Texas
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was an inactive corporation at all times relevant to the litigation.2 The district
court held that the defendants failed to carry their burden of proving improper
joinder because “the complaint makes no distinction between the origination and
later servicing of their home loan” and because the Secretary of State’s records
showed that Countrywide Home Loans of Texas was in existence and in use
when the Cuevases filed suit. We disagree with the district court. The
defendants have carried the burden of proving improper joinder; the district
court has diversity jurisdiction over the state law claims.
1. Law
The improper joinder doctrine constitutes a narrow exception to the rule
of complete diversity. McDonal v. Abbott Labs., 408 F.3d 177, 183 (5th Cir.
2005). “[T]he purpose underlying the improper joinder inquiry is to determine
whether or not the in-state defendant was properly joined.” Id. Thus, “the focus
of the inquiry must be on the joinder, not on the merits of the plaintiff’s case.”
Id. The burden is on the removing party; and the burden of demonstrating
improper joinder is a heavy one. See id. (citing Griggs v. State Farm Lloyds, 181
F.3d 694, 699 (5th Cir. 1999)). To establish improper joinder, the removing
party must demonstrate either : “(1) actual fraud in the pleading of jurisdictional
facts, or (2) inability of the plaintiff to establish a cause of action against the
non-diverse party in state court.” Smallwood v. Ill. Cent. R.R. Co., 385 F.3d 568,
573 (5th Cir. 2004) (en banc) (citing Travis v. Irby, 326 F.3d 644, 646–47 (5th
Cir. 2003)). Only the second way is before us.
Under the second way, the test is “whether the defendant has
demonstrated that there is no possibility of recovery by the plaintiff against an
in-state defendant, which stated differently means that there is no reasonable
basis for the district court to predict that the plaintiff might be able to recover
2
On appeal, the defendants do not dispute that Countrywide Home Loans of Texas was
in existence and in use during all relevant times of the litigation.
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against an in-state defendant.” Id. If there is no reasonable basis of recovery,
then the court can conclude that the plaintiff’s decision to join the in-state
defendant was indeed improper, unless that showing compels the dismissal of
all defendants. McDonal, 408 F.3d at 183; Smallwood, 385 F.3d at 575. There
is no improper joinder if the defendants’ showing “compels the same result for
the resident and nonresident defendants,” because this simply means that “the
plaintiff’s case is ill founded as to all of the defendants.” McDonal, 408 F.3d at
183 (citation and internal quotation marks omitted); Smallwood, 385 F.3d at 574
(citation and internal quotation marks omitted). Such a defense is more
properly an attack on the merits of the claim, rather than an inquiry into the
propriety of the joinder of the in-state defendant. Id.
Finally, any contested issues of facts and any ambiguities of state law
must be resolved in the Cuevases’ favor. Travis, 326 F.3d at 649.
2. Analysis
In deciding what procedure was necessary to predict whether the Cuevases
have a reasonable basis of recovery under the state law, the district court
appears to have relied primarily on the complaint, but also pierced the complaint
to determine whether (1) Countrywide Home Loans of Texas was in existence
and in use during the relevant period of litigation,3 and (2) there was discrete,
undisputed evidence that Countrywide Home Loans of Texas did not service or
originate the loans. The district court’s process clearly fell within the bounds of
the discretion we outlined in Smallwood, 385 F.3d at 573–74 (5th Cir. 2004).
Accordingly, we review using the same process.
On appeal, the defendants no longer dispute that Countrywide Home
Loans of Texas was in existence and in use during all relevant times of the
3
In its order and opinion, the district court referred to the Secretary of State’s records
to confirm that Countrywide Home Loans of Texas was in existence and in use when the
Cuveses filed suit.
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litigation. The defendants continue to argue that Countrywide Home Loans of
Texas did not originate or service the Cuevases loans, and therefore that the
Cuevases cannot recover against Countrywide Home Loans of Texas. After
reviewing the record, we agree that there is no reasonable basis to predict that
the Cuevases might be able to recover against the in-state defendant.
The defendants provided undisputed evidence establishing that
Countrywide Home Loans of Texas did not originate or service the loans. The
deeds of trust list First Magnus Corporation as the lender that originated the
loan. To support its contention that Countrywide Home Loans of Texas does not
service loans and has never serviced loans, the defendants offered the affidavit
of Devra Lindgren, Vice-President and Assistant Corporate Secretary of Bank
of America, N.A.4 Lindgren testified from her personal knowledge of the
structure of Bank of America, its subsidiaries, and its affiliates—including
Countrywide entities such as Countrywide Home Loans of Texas—and her
review of relevant business records. Lindgren testified that the Cuevases’ loan
was serviced by Countrywide Home Loans Servicing LP— which later changed
its name to BAC Home Loans Servicing, LP—at all times relevant to the
complaint. Lindgren further testified that Countrywide Home Loans of Texas
was created to conduct the mortgage origination business of Full Spectrum
Lending, Inc. Finally, she averred that Countrywide Home Loans of Texas did
not originate the Cuevases loan, nor did it ever service loans for the Cuevases
or anyone else.
In their reply to the defendants’ response in opposition to the motion for
remand, the Cuevases failed to produce any evidence disputing the defendants
evidence or supporting their own allegations. Further, the evidence in the record
lends support to Lindgren’s statement that Countrywide Home Loans Servicing
4
Bank of America, N.A. wholly owns BANA LP, LLC and BANA GP, LLC, which are
the limited partners in BAC Home Loans Servicing, LP.
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LP serviced the Cuevases’ home loan. In their amended complaint, the Cuevases
alleged that Countrywide sent the Cuevas family a letter on January 21, 2009,
informing the Cuevases of their default and the amount they had to pay by
February 20, 2009. The very first line of the January 21 letter, which was typed
on “Countrywide Home Loans” letterhead, states that Countrywide Home Loans
Servicing LP (now known as BAC Home Loans Servicing, LP) services the home
loan for the Cuevas property in Porter, Texas.
In light of the defendants’ undisputed evidence that Countrywide Home
Loans of Texas did not originate or service the Cuevases’ home loan, we find that
the defendants have demonstrated that the Cuevases have no possibility of
recovery against the in-state defendant. The defendants have carried their
burden of proving the improper joinder of Countrywide Home Loans of Texas.
The remaining parties are diverse; the district court had diversity jurisdiction
over the state law claims at the time of remand. When the district court has
original subject matter jurisdiction over state law claims, the exercise of that
jurisdiction is mandatory. The parties cannot waive or agree to destroy that
original jurisdiction. See Adair, 587 F.3d at 241. The district court erred in
remanding the state law claims.
III. CONCLUSION
For the reasons stated above, we reverse the district court’s decision to
remand the state law claims to Texas state court and remand for proceedings
consistent with this opinion.
REVERSED AND REMANDED.
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