Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_15-cv-02777/USCOURTS-casd-3_15-cv-02777-0/pdf.json

Nature of Suit Code: 220
Nature of Suit: Foreclosure
Cause of Action: 28:1332fc Diversity - Foreclosure

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UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

DARYL PRENDERGAST and

KATHERINE PRENDERGAST,

Plaintiffs,

CASE NO. 15cv2777 DMS (JMA)

ORDER (1) GRANTING

PLAINTIFFS’ MOTION FOR

RECONSIDERATION AND (2)

GRANTING PLAINTIFFS’

MOTION TO REMAND

v.

CAPITAL ONE, N.A., a Virginia

corporation, INTEGRATED LENDER

SERVICES, INC., a Delaware

corporation, KATHLEEN MOONEY

and DOES 1 through 100, inclusive,

Defendants.

On December 10, 2015, Defendant Capital One, N.A. removed this case to this

Court alleging jurisdiction under both the diversity and federal question statutes. To

establish diversity, Capital One alleged Defendants Integrated Lender Services and

Kathleen Mooney were fraudulently joined as sham defendants, and thus their

citizenship should be disregarded. As part of these allegations, Capital One stated, “a

non-diverse defendant is said to be fraudulently joined where ‘the plaintiff fails to state

a cause of action against a resident defendant, and the failure is obvious according to

the settled rules of the state.’” (Notice of Removal ¶ 6.c.) (quoting McCabe v. Gen.

Foods Corp., 811 F.2d 1336, 1339 (9th Cir. 1987)). Capital One then turned to the

claim alleged against Defendants Integrated and Mooney (breach of trustee duties), and

explained why that claim failed as a matter of law. (Id. ¶¶ 6.c-d.) Capital One alleged

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there was federal question jurisdiction because the primary issue to be adjudicated was

“whether ING issued an erroneous IRS Form 1099-C.” (Id. ¶ 8.) 

In response to the removal, Plaintiffs filed a motion to remand. In that motion,

they raised three arguments. First, they asserted Defendants failed to comply with 28

U.S.C. § 1446(a), which rendered the removal procedurally defective. Second, they

contended there was incomplete diversity between the parties. Third, Plaintiffs argued

there was no federal question jurisdiction. Nowhere in the motion to remand did

Plaintiffs challenge or question the standard for fraudulent joinder set out by Capital

One in the Notice of Removal. 

In ruling on the motion to remand, the Court agreed with Plaintiffs on the third

argument that federal question jurisdiction was lacking. However, the Court disagreed

with Plaintiffs on diversity jurisdiction. There being no dispute between the parties

about the standard for fraudulent joinder, the Court adopted Defendants’ approach,

agreed with Defendants that Integrated and Mooney were sham defendants, and thus

declined to consider their citizenship in deciding the diversity issue. Because there was

complete diversity between the remaining parties, Plaintiffs and Capital One, the Court

found there was diversity jurisdiction. The Court declined to address Plaintiffs’ first

argument about the alleged procedural defect in the notice of removal in light of its

finding that Defendants Integrated and Mooney were fraudulently joined. 

On March 7, 2016, Plaintiffs filed the present motion for reconsideration of the

Court’s order denying their motion to remand. Defendants filed an opposition to the

motion, and Plaintiffs filed a reply. For the reasons set out below, the Court grants

Plaintiffs’ motion for reconsideration, and grants Plaintiffs’ motion to remand. 

Although Plaintiffs did not raise this particular argument in their motion for

reconsideration or any of their previous briefs on this issue, the Court finds the standard

for fraudulent joinder set out in the Notice of Removal and Defendants’ previous briefs

on this issue is incorrect. In deciding the motion to remand, the Court looked only to

the claim alleged against Defendants Integrated and Mooney, and considered that claim

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according to the standard set out by Defendants, which is akin to the standard for

motions to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6). Although one

other district court in the Ninth Circuit has applied this standard, see Johnson v.

GranCare, LLC, No. 15-cv-03585-RS, 2015 U.S. Dist. LEXIS 151971 (N.D. Cal. Nov.

9, 2015), “[t]he vast majority of district court decisions ... have determined that the

fraudulent joinder standard is tougher to meet than the Rule 12(b)(6) standard, such that

fraudulent joinder will not be found if there is ‘any possibility’ that the plaintiff could

state a claim.” GranCare, LLC v. Thrower, Nos. C 15-05362 WHA, 15-05575 WHA,

2016 U.S. Dist. LEXIS 36413, at *14 (N.D. Cal. Mar. 21, 2016) (quoting Hunter v.

Philip Morris USA, 582 F.3d 1039, 1044 (9th Cir. 2009)). This approach is consistent

with the “strong presumption” against removal jurisdiction, Hunter, 582 F.3d at 1042,

and the “general presumption” against fraudulent joinder. Hamilton Materials Inc. v.

Dow Chemical Corp., 494 F.3d 1203, 1206 (9th Cir. 2007). 

When considered through this lens, it is clear Defendants have not met their

burden to show, by clear and convincing evidence, id., that Defendants Integrated and

Mooney are sham defendants. Their arguments in opposition to Plaintiffs’ motion to

remand go to the merits of Plaintiffs’ claim, which is insufficient to establish fraudulent

joinder. Mahoney v. Unum Group, No. C 15-3532 SBA, 2015 U.S. Dist. LEXIS

145804, at *2-3 (N.D. Cal. Oct. 27, 2015). “Rather, a finding of fraudulent joinder

requires a showing that the plaintiff could not plead any facts sufficient to state a claim

against those defendants, such that leave to amend would be futile.” Ramirez v. Speltz,

No. C 15-03538 WHA, 2015 U.S. Dist. LEXIS 137902, at *7 (N.D. Cal. Oct. 8, 2015). 

Here, Defendants made a preliminary showing that they owed no fiduciary duty to

Plaintiffs to apply the proceeds of the sale in a certain order. See Hatch v. Collins, 225

Cal. App. 3d 1104, 1112-13 (1990) (finding claim against trustee could not “be called

a breach of any fiduciary relation.”) However, Defendants did not show there is no

possibility Plaintiff could state a negligence claim against them based on the facts

alleged in this case. Id. Accordingly, there is no fraudulent joinder here. 

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Absent a finding that Defendants Integrated and Mooney are sham defendants,

the Court must consider their citizenship in determining whether there is complete

diversity. There is not. Defendants Integrated and Mooney are citizens of California,

as are Plaintiffs. Thus, complete diversity is lacking. In light of this finding, and the

Court’s previous finding that there is no federal question jurisdiction, which finding

Defendants do not dispute, the Court grants Plaintiffs’ motion to remand. The Clerk

of Court shall provide a certified copy of this order to the clerk of the State court, and

thereafter close this case.

IT IS SO ORDERED.

DATED: April 27, 2016

HON. DANA M. SABRAW

United States District Judge

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