Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_09-cv-00259/USCOURTS-casd-3_09-cv-00259-1/pdf.json

Nature of Suit Code: 290
Nature of Suit: Other Real Property Actions
Cause of Action: 28:1441 Petition for Removal

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UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

DEBORAH G. CHAFFIN, an individual,

Plaintiff,

CASE NO. 09-CV-00259-H (RBB)

ORDER REMANDING CASE

vs. TO STATE COURT

AUTOMATED FINANCE

CORPORATION, a California

corporation, form unknown; AZTEC

FORECLOSURE CORPORATION, an

Arizona corporation, for unknown;

OCWEN LOAN SERVICING, LLC, a

Florida corporation, form unknown;

HSBC BANK USA, a business entity,

form unknown; ACE SECURITIES

CORP. HOME EQUITY LOAN TRUST,

a business entity, form unknown; and

DOES 1 through 50, inclusive,

Defendants.

On December 16, 2008, Plaintiff Deborah Chaffin filed a complaint in state court

against Defendants in connection with her mortgage and the foreclosure sale of her residence.

(Doc. No. 1, Attach. A.) Plaintiff alleged fourteen causes of action, including causes of action

under three federal acts: 15 U.S.C. §§ 1601, et seq. (TILA), 12 U.S.C. §§ 2601 et. seq.

(RESPA), and 15 U.S.C. § 1681 (FCRA). (Id.) On February 11, 2009 Defendants Ocwen

Loan Servicing, LLC (“Ocwen”) and HSBC Bank USA, N.A., as Trustee on behalf of ACE

Securities Corp. Home Equity Loan Trust, Series 2007-ASAP2, Asset Backed Pass-Through

Case 3:09-cv-00259-H-RBB Document 24 Filed 09/21/09 Page 1 of 5
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Certificates (“HSBC Bank”) (erroneously named as two separate entities HSBC Bank, USA

and ACE Securities Corp.) removed the case to federal court on the basis of federal question

jurisdiction under 28 U.S.C. § 1331. (Doc. No. 1.) 

On February 19, 2009, Defendants Ocwen and HSBC Bank filed a motion to dismiss

Plaintiff’s complaint. (Doc. No. 3.) In response, Plaintiff acknowledged that her complaint

contained certain defects and requested leave to amend. (Doc. No. 5.) The Court granted

Defendants’ motion to dismiss Plaintiff’s complaint with leave to amend on March 19, 2009.

(Doc. No. 7.) On April 23, 2009 Plaintiff filed her First Amended Complaint (“FAC”),

alleging causes of action for breach of contract, fraud, negligence, to set aside Trustee’s sale,

and to cancel Trustee’s Deed. (Doc. No. 8.) The FAC does not allege any causes of action

under federal law and complete diversity between the parties does not exist.

On September 1, 2009, the Court ordered the parties to show cause why the case should

not be remanded to state court for lack of federal question jurisdiction. (Doc. No. 20.)

Defendants filed a response to the Court’s order on September 16, 2009. (Doc. No. 22.)

Plaintiff did not file a response. 

I. Remand

A district court has discretion to remand a properly removed case back to state court

where a § 1331 claim ceases to exist and only state law claims remain. Carnegie-Mellon Univ.

v. Cohill, 484 U.S. 343, 358 (1988) (allowing district courts discretion to remand cases to state

court in which federal claims have been eliminated and only pendent state claims remain),

superseded by statute, 28 U.S.C. § 1367 (2004) (enacted 1990) (providing that a district court

may decline to exercise supplemental jurisdiction where it has “dismissed all claims over

which it has original jurisdiction”). Factors to consider in remanding include comity, judicial

economy, convenience, and fairness to litigants. See Carnegie-Mellon Univ., 484 U.S. at 357.

The Ninth Circuit has stated that “it is generally preferable for district court to remand

remaining pendent claims to state court.” Harrell v. 20th Century Ins. Co., 934 F.2d 203, 205

(9th Cir. 1991). 

The Court, in its discretion, determines that this case should be remanded to state court.

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All remaining claims in the FAC arise under California state law with no connection to federal

law. State courts are better equipped to handle state claims and this case is still in its beginning

stages. Remanding this case to state court will not inconvenience Plaintiff, as she originally

filed in state court. Although Defendants filed a motion to dismiss in federal court, much of

the analysis in Defendants’ papers should apply in a California demurrer procedure. Finally,

the Court has not expended substantial federal resources on this case, as it has only reviewed

Defendants’ motion to dismiss, approved an attorney substitution, and requested briefing on

the Court’s jurisdiction. Accordingly, the Court remands the remaining pendent claims to state

court. 

II. Preemption

Plaintiff’s FAC alleges causes of action for breach of contract, fraud, negligence, set

aside Trustee’s sale, and cancel Trustee’s deed. (Doc. No. 8.) Plaintiff’s claims are based

upon allegations that after receiving a refinance loan from Automated Finance Corporation in

the amount of $420,000, Automated Finance Coporation re-recorded the trust deed and

changed the loan amount to $443,000 by using a prior signature page previously executed by

Plaintiff and not re-executed by her. (FAC ¶¶ 11-12.) Defendants argue in their response to

the Court’s order to show cause that these state law claims are preempted by federal law,

thereby giving the Court federal question jurisdiction. (Doc. No. 22 at 5-8.) In support of their

argument, Defendants rely on the Office of Thrift Supervision’s (“OTS”) power to preempt

state laws that impose obligations on federal banks and thrifts related to their lending

obligations. (Id. at 5.) 

The Court concludes that Plaintiff’s state law causes of action are not preempted by

OTS’s preemption regulation. “Through HOLA, Congress gave the Office of Thrift

Supervision (“OTS”) broad authority to issue regulations governing thrifts. 12 U.S.C. § 1464.

As the principal regulator for federal savings associations, OTS promulgated a preemption

regulation in 12 C.F.R. § 560.2.” Silvas v. E*Trade Mortg. Corp., 514 F.3d 1001, 1005 (9th

Cir. 2008). In order to determine if a state claim is preempted, the Court first looks to whether

the state law is a type contemplated by the list in § 560.2(b) of the preemption regulation. Id.

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at 1006. If it is, the preemption analysis ends and the claim is preempted. Id. at 1006.

However, if the law is not covered by § 560.2(b), the court must ask whether the law affects

lending. Id. at 1006. If it does, then in accordance with § 560.2(a) a presumption arises that

the law is preempted. Id. at 1006. This presumption is only reversed if the law can “clearly”

be shown to fit within the confines of any of the six categories enumerated in § 560.2(c). Id.

at 1006-07. 

 Plaintiff’s state law causes of action are not of a type listed as being specifically

preempted under § 560.2(b), as none of her state common law claims impose the type of

requirements listed in subsection (b). Therefore, the Court evaluates whether the state laws

at issue affect lending. The Court concludes that the state laws at issue have only an incidental

effect on lending operations and do not affect lending within the meaning of §560.2(a).

Plaintiff’s breach of contract, fraud, negligence, and actions to set aside Trustee’s Sale and

Deed are premised on the allegation that Automated Finance Corporation breached the loan

contract by changing the amount of the loan without Plaintiff’s knowledge or consent.

Because Plaintiff’s claims are premised on a simple breach of contract claim, they only

incidentally affect lending operations because a lender happens to be a party to the alleged

contract. Additionally, Plaintiff’s claims are of the type that fit within § 560.2(c)’s list of state

laws that are not preempted. Subsection (c) provides that:

State laws of the following types are not preempted to the extent that they only

incidentally affect the lending operations of Federal savings associations or are

otherwise consistent with the purposes of paragraph (a) of this section:

(1) Contract and commercial law; (2) Real property law; (3) Homestead laws

specified in 12 U.S.C. § 1462a(f); (4) Tort law; (5) Criminal law; and (6) Any

other law that OTS, upon review, finds: (i) Furthers a vital state interest; and (ii)

Either has only an incidental effect on lending operations or is not otherwise

contrary to the purposes expressed in paragraph (a) of this section. 

12 C.F.R. § 560.2(c). On the basis of this provision of the preemption regulation and in the

absence of Defendants providing sources to the contrary, the Court “read[s] subsection (c) to

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mean that OTS’s assertion of plenary regulatory authority does not deprive persons harmed

by the wrongful acts of savings and loan associations of their basic state common-law-type

remedies.” In re Ocwen Loan Servicing, LLC Mortg. Servicing Litigation, 491 F.3d 638, 643

(7th Cir. 2007) (noting that “it would be surprising for a federal regulation” to forbid a breach

of contract action when a lender specifies one interest rate in the agreement and then charges

a higher rate or to forbid a fraud action when a servicer like Ocwen fraudulently represents it

will forgive a default and then forecloses). Accordingly, the Court concludes that Plaintiff’s

state law claims are not preempted.

Conclusion

For the reasons set forth above, the Court remands this case to state court. 

IT IS SO ORDERED.

DATED: September 21, 2009 

_______________________________

MARILYN L. HUFF, District Judge

UNITED STATES DISTRICT COURT

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