Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_10-cv-00372/USCOURTS-cand-3_10-cv-00372-5/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1441 Petition For Removal--Other Contract

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United States District Court

For the Northern District of California

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IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

NATHANIEL HAYNES,

Plaintiff,

 v.

EMC MORTGAGE CORPORATION,

BEAR STEARNS, QUALITY LOAN

SERVICE CORPORATION, and

DOES 1 through 1000,

Defendants. /

No. C 10-00372 WHA

ORDER GRANTING

PLAINTIFF’S MOTION

TO REMAND AND

DENYING MOTION 

TO DISMISS AS MOOT

INTRODUCTION

This action present an interesting question of local law under California Civil Code

Section 2932.5. Plaintiff seeks to represent a class of California residents. This order finds

that CAFA removal is not appropriate and that remand is required under the so-called “local

controversy” exception to CAFA removal. 

STATEMENT

Plaintiff Nathaniel Haynes initiated this putative class action lawsuit against defendants

EMC Mortgage Corporation, Bear Stearns, Quality Loan Service Corporation and Does 1–1000

for money damages and equitable relief in the Alameda County Superior Court. Defendants

removed this action to federal court. Following the removal, defendants filed two motions to

dismiss this action. Plaintiff seeks to remand this action back to state court. 

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Plaintiff alleges a claim for unfair, unlawful, or fraudulent business act or practice

pursuant to California Code of Business and Professions Section 17200 et seq., against all

defendants for failing to comply with California Civil Code Section 2932.5, and against

defendants EMC and Bear Stearns for collecting unlawful fees in connection with a foreclosure

proceeding. Plaintiff further alleges a breach of contract claim against defendants Quality Loan

and Does 1–1000 and a claim for violation of California Consumer Remedies Act against all

defendants. 

Facts of the cases are as follows. In May 2006, plaintiff purchased a residence in

Oakland with a mortgage loan from EquiFirst Corporation, the lender. The deed of trust

listed Placer Title Company as the trustee, and Mortgage Electronic Registration Systems, Inc.

(“MERS”) as the beneficiary. In January 2008, plaintiff stopped making payments on his

mortgage loan. In April 2008, defendant Quality Loan Service Corporation, as an agent for

MERS, the beneficiary, issued plaintiff a notice of default and election to sell. In May 2008,

MERS substituted defendant Quality Loan as the trustee on the deed of trust, replacing Placer

Title Company. In August 2008, defendant Quality Loan recorded a notice of trustee’s sale of

the property. In November 2008, plaintiff’s residence was sold at a trustee’s sale. The new

trustee’s deed upon sale named defendant Quality Loan as the trustee and defendant EMC

Mortgage Corporation as the foreclosing beneficiary.

Plaintiff alleges that there is no public record of any transfer of property interest from

EquiFirst, the original lender, to defendants EMC, Bear Stearns, or any Doe defendants, in

violation of California Civil Code Section 2932.5. Plaintiff also alleges that defendants EMC

and Bear Stearns directed defendant Quality Loan to initiate a trustee’s sale, even though they

had not complied with Section 2932.5 and failed to record the assignment of the title. 

Plaintiff alleges that defendant EMC had a policy of foreclosing on properties without recording

the assignment of the title of the property. Plaintiff also alleges that defendant EMC collected

unlawful fees from him prior to and during the foreclosure process. 

Plaintiff seeks to represent the following three classes: (1) all persons who owned

residential real property in California, four years prior to the filing of this complaint to the

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present, whose residences were subject to foreclosure by defendant EMC; (2) all persons who

owned residential real property in California, four years prior to the filing of the complaint to the

present, who were charged unlawful fees by defendant EMC before and during the foreclosure

process; and (3) all persons who owned real property in California four years prior to the filing

of this action to the present who had a trustee initiate foreclosure proceedings at the direction of

defendant EMC before determining whether defendant EMC had recorded a notice of

assignment.

ANALYSIS

Defendants removed this action to federal court pursuant to the Class Action Fairness Act

of 2005 (“CAFA”), 28 U.S.C. 1332(d)(2), and 28 U.S. C. 1441 et seq. Defendants’ ground for

removal is that federal courts have original jurisdiction over any class action lawsuit in which 

(1) any member of the class of plaintiffs is a citizen of a state different from any defendant, and

(2) the matter in controversy exceeds the sum of value of five million dollars, exclusive of

interest and costs. 28 U.S.C. 1332(d)(2). 

Plaintiff seeks to remand to state court on the following grounds: (1) defendants have not

met their burden of showing that the amount in controversy exceeds five million dollars; and 

(2) the local controversy exception to CAFA applies to this action.

Plaintiff is a citizen of California. Defendant EMC is a corporation incorporated in

Delaware with its principal place of business in Texas. Defendant Bear Stearns was

incorporated in Delaware, and its principal place of business is New York. Defendant Quality

Loan is a citizen of California. Thus, defendants must prove that the matter in controversy

exceeds five million dollars to successfully remove this action to federal court, and plaintiff must

prove that the local controversy exception to CAFA applies in this action to remand.

1. AMOUNT IN CONTROVERSY.

When the complaint does not allege the amount of damages sought, the removing

defendant must allege and prove that the amount in controversy exceeds five million dollars. 

Gaus v. Miles, 980 F.2d 564, 567 (9th Cir. 1992) (the burden of establishing federal jurisdiction

for purposes of removal is on the party seeking removal). The burden is on the removing

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defendant to prove the amount in controversy by a preponderance of the evidence. See Abrego

Abrego v. The Dow Chemical Co., et al., 443 F.3d 676, 683 (9th Cir. 2006).

Plaintiff argues that defendants fail to offer any facts to support their assertions that the

amount in controversy exceeds five million dollars. Plaintiff points out that he did not explicitly

include a specific amount of damages in the complaint. But defendants need not provide

evidence relevant to the amount in controversy because plaintiff did, in fact, allege an amount

in controversy exceeding five million dollars, albeit indirectly.

Plaintiff alleges that:

[d]efendant EMC . . . exercised the power of sale for residential

homes owned by many thousands of California residents without

having duly acknowledged and recorded the assignment of the

beneficial interest. . . pursuant to California Civil Code § 2932.5.

* * *

[d]efendant EMC assessed and collected fees from thousands of

California residents that were either not permitted under their

mortgage contracts or by law.

* * *

[p]laintiff and the Class members are entitled to injunctive relief

and equitable relief in the form of restitution of their homestead

rights, all money they had paid towards such property, or

alternatively, full restitution of all monies wrongfully acquired by

Defendant by means of any such unlawful and unfair business

practices.

(Compl. ¶¶ 32, 38, 54). Plaintiff seeks to represent thousands of California citizens in this

purported action and requests homestead rights. California Civil Code of Procedure

Section 704.730 provides that the homestead exemption in California ranges from $75,000

to $175,000. Thousands of putative class members seeking homestead rights in California puts

the amount in controversy well north of five million dollars. Thus, defendants have met their

burden to show that the amount in controversy exceeds five million dollars.

2. LOCAL CONTROVERSY EXCEPTION.

Plaintiff contends that even if the amount in controversy exceeds five million dollars,

federal jurisdiction does not attach because the local controversy exception to CAFA applies to

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the instant action. See 28 U.S.C. 1332(d)(4)(A). Under the local controversy exception, a

district court shall decline to exercise jurisdiction: 

(A)(i) over a class action in which—

(i) greater than two-thirds of the members of all proposed

plaintiff classes in the aggregate are citizens of the State in

which the action was originally filed;

(II) at least 1 defendant is a defendant—

(aa) from whom significant relief is sought by

members of the plaintiff class;

(bb) whose alleged conduct forms a significant

basis for the claims asserted by the proposed

plaintiff class; and

(cc) who is a citizen of the State in which the

action was originally filed; and

(III) principal injuries resulting from the alleged conduct

or any related conduct of each defendant were incurred in

the State in which the action was originally filed; and

(ii) during the 3-year period preceding the filing of that class

action, no other class action has been filed asserting the same or

similar factual allegations against any of the defendants on behalf

of the same or other persons. 

28 U.S.C. 1332(d)(4)(A). Plaintiff has the burden of proving that the local controversy

exception applies, and this order finds that plaintiff has successfully carried his burden of

proving each element, therefore, remand is appropriate. 

A. California Citizens.

By definition of proposed classes, it is clear that greater than two-thirds of the member of

all proposed plaintiff classes are California citizens. Plaintiff has carried his burden of proof on

this element. 

B. Significant Defendant.

Turning to the second element, plaintiff asserts that defendant Quality Loan is a citizen

of California because it is incorporated in and retains a principal place of business in California

(Winchester Decl. Exh. 1). Plaintiff further asserts that he seeks significant relief from defendant

Quality Loan and that Quality Loan’s conduct was significant in causing injury because Quality

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Loan is only one of only three named defendants and plaintiff has alleged four claims against the

entity. Defendant concedes that defendant Quality Loan is a California citizen. 

Defendants argue, however, that plaintiff fails to meet his burden of proof that defendant

Quality Loan is a defendant from whom significant relief is sought and whose conduct formed a

significant basis for the claims. Defendants argue that plaintiff seeks relief predominantly from

defendant EMC, and it is defendant EMC whose conduct is the central issue in this case; thus,

defendant Quality Loan is a peripheral defendant whose conduct was not significant nor from

whom plaintiff seeks significant relief.

The statute does not expressly define what constitutes significant relief. Although the

Ninth Circuit has not yet discussed the meaning of “significant relief” and “significant basis”

as used in CAFA, the Third and Eleventh Circuits have held that these provisions require a

comparison between the local defendant's significance and the significance of all the defendants. 

Kaufman v. Allstate N.J. Ins. Co., 561 F.3d 144, 156 (3d Cir. 2009) (“[I]f the local defendant's

alleged conduct is a significant part of the alleged conduct of all the Defendants, then the

significant basis provision is satisfied.”); Evans v. Walter Indus., Inc., 449 F.3d 1159 (11th Cir.

2006) (analyzing comparative significance of relief sought against local defendant relative to

relief sought from co-defendants). Thus, rather than look to whether the relief or conduct of the

local defendant is significant in an absolute sense, a court must undertake “a substantive analysis

comparing the local defendant's alleged conduct to the alleged conduct of all the Defendants.” 

Kaufman, 561 F.3d at 156. 

Defendant Quality Loan is one of three named defendants, and has four claims alleged

against the entity: (1) two claims for unfair, unlawful, or fraudulent business act or practice

pursuant to California Code of Business and Professions Section 17200 et seq., for failing to

comply with California Civil Code Section 2932.5; (2) a breach of contract claim; and (3) a

claim for violation of California Consumer Remedies Act. Claims against defendant Quality

Loan cannot be said to be peripheral to this action. The central claim against defendant Quality

Loan is that it allegedly improperly foreclosed upon plaintiff’s residence, following directions

from defendant EMC. Defendant Quality Loan’s conduct is so deeply intertwined with that of

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defendant EMC that it cannot be disregarded as a significant defendant. See Kaufman, 561 F.3d

at 157. 

Defendants rely on Kearns v. Ford Motor Co., 2005 WL 3967998 (C.D.Cal. 2005), to

support their position. However, Kearns is factually distinguishable from this instant action. 

The plaintiff in Kearns brought a putative class action lawsuit against Ford, a California Ford

dealership, and doe defendants for misrepresenting Ford certified pre-owned vehicles. Ibid.

The court in Kearns found that the local Ford dealership was not a defendant from whom

significant relief was sought because the local dealership only sold cars to a fraction of the class. 

Id. at *10. In Kearns, it was clearly established that the local Ford dealership was involved in

only a small percentage of car sales to class members. Here, defendant Quality Loan may have

served as the trustee to all or a majority of the mortgage loans where defendant EMC was named

as the foreclosing beneficiary. 

Defendants further contend that proposed class definition does not even mention

defendant Quality Loan, but focuses on the conduct by defendant EMC — thus, defendant

Quality Loan’s conduct did not form a significant basis for the alleged claims. Defendants’

argument fails on this point as it is clear that defendant Quality Loan’s conduct is intertwined

with the conduct by defendant EMC; thus, even though defendant Quality Loan is not explicitly

named in the proposed class definition, it is clear that defendant Quality Loan is significantly

implicated. Accordingly, plaintiff has met his burden in proving that defendant Quality Loan

is a significant local defendant.

C. Place of Injury.

The alleged wrongful foreclosures in the complaint all occurred in California. 

Thus, plaintiff has carried his burden of proof as to this element.

D. No Other Similar Class Action.

Plaintiff has carried his burden on proving the fourth element — that no other class

action has been filed asserting the same or similar factual allegations against any of the

defendants during the three-year period preceding the filing of this instant action. Plaintiff’s

counsel states that he has identified no other similar class action filed in the past three-year

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period asserting the same or similar factual allegations against any of the defendants. In

opposition, defendants assert that there is at least one similar purported class action, which was

originally filed in the District of Nevada in 2009 and transferred to the District of Arizona

pursuant to the transfer order of the United States Judicial Panel on Multidistrict Litigation to In

RE: Mortgage Electronic Registration Systems (MERS) Litigation. Defendants cite Dalton, et

al., v. Citimortgage, Inc., et al., Case No. 09-00534, which challenges the validity of nonjudicial

foreclosure against defendants EMC and Quality Loan. Dalton specifically challenges the

formation and the operation of MERS system, an electronic mortgage registration system that

tracks beneficial ownership interests in mortgage loans. 

Plaintiff argues that this instant action does not challenge the conduct of MERS; rather

the factual allegations at issue is that defendants failed to comply with a specific California

statute, unique to California, regarding recording of assignment of beneficial interest in

mortgages. While some of the larger policy issues raised in Dalton are also raised here, the

factual allegations are not sufficiently similar enough to determine that these cases assert the

same or similar factual allegations. Plaintiff has met his burden on this element. Accordingly,

the local controversy exception to CAFA does apply to this action. 

This is a classic issue of California state law that California state courts would be the best

suited to decide. That is not a reason in and of itself to find remand appropriate, but if there was

ever a local controversy, then this would be it.

CONCLUSION

For the foregoing reasons, plaintiff’s motion to remand this action is GRANTED.

The motion to dismiss is deemed as moot without prejudice to renewal by way of demurrer on

remand.

IT IS SO ORDERED.

Dated: April 12, 2010 WILLIAM ALSUP

UNITED STATES DISTRICT JUDGE

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