Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-almd-3_05-cv-01229/USCOURTS-almd-3_05-cv-01229-0/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1330 Breach of Contract

---

IN THE DISTRICT COURT OF THE UNITED STATES FOR THE

MIDDLE DISTRICT OF ALABAMA, EASTERN DIVISION

ETHEL MAE DAVIS, )

)

Plaintiff, )

) CIVIL ACTION NO.

v. ) 3:05cv1229-MHT

) (WO)

OCWEN FEDERAL BANK, FSB, )

et al., )

)

Defendants. )

ORDER

Plaintiff Ethel Mae Davis initially filed this

lawsuit in state court charging defendants Ocwen Federal

Bank, FSB, and Family Financial Services, LLC, and

several other defendants with state-law claims for fraud,

misrepresentation, concealment, negligence, conversion,

and defamation in connection with a mortgage she

obtained. Pursuant to 28 U.S.C.A. §§ 1441 and 1452,

Ocwen Federal removed this lawsuit from state to federal

court. This matter is now before the court on Davis’s

motion to remand and Ocwen Federal’s motion to stay.

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Davis’s motion will be granted, and Ocwen Federal’s

motion denied.

 I. REMAND STANDARD

Federal courts are courts of limited jurisdiction and

may hear a case only if authorized to do so by federal

law. Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S.

375, 377 (1994). The party seeking removal has the

burden of establishing it, Burns v. Windsor Ins. Co., 31

F.3d 1092, 1095 (11th Cir. 1994), and the removal statute

must be strictly construed because it raises significant

federalism concerns, Shamrock Oil & Gas Corp. v. Sheets,

313 U.S. 100, 108-09 (1941). All doubts about federalcourt jurisdiction should be resolved in favor of a

remand to state court. Burns, 31 F.3d at 1095.

II. BACKGROUND

In her state-court complaint, filed June 8, 2004,

Davis alleged that she executed a note and mortgage that

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1. All defendants besides Ocwen Federal and Family

Financial have since settled the claims against them or

been dismissed as defendants.

2. Ocwen Federal services the mortgage that underlies

this litigation.

3. Notice of Removal (Doc. No. 5), Ex. A, Complaint.

4. Brief in support of motion to remand (Doc. No.

14), Ex. F, Voluntary petition.

5. Brief in opposition to motion to remand (Doc. No.

13), Ex. 3, Chapter 13 summary plan.

6. Based on the state of the record, which does not

(continued...)

3

was originated and closed by Family Financial and another

defendant,1

 and that the defendants, including Ocwen

Federal,2

 improperly charged Davis fees and penalties,

improperly initiated foreclosure proceedings, improperly

reported the incorrect loan status to credit agencies,

and improperly initiated collection proceedings.3

On September 15, 2004, Davis filed for Chapter 13

bankruptcy protection.4

 The arrearages and fees at issue

in this litigation were listed as a debt in Davis’s

proposed bankruptcy plan,5

 and the lawsuit against Ocwen

Federal was an asset of the bankruptcy estate.6

 The

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6.(...continued)

include Davis’s schedule of assets from her bankruptcy

petition, the court cannot determine if the claim was

listed as an asset prior to plan confirmation. However,

it is clear from the record that the lawsuit was listed

as an asset by at least August 5, 2005, when Davis sought

the bankruptcy court’s approval of the settlement of the

claims against several defendants. See Brief in

opposition to motion to remand (Doc. No. 13), Exs. 5 & 6,

Applications for approval of tentative settlement and

distribution of proceeds.

7. Brief in opposition to motion to remand (Doc. No.

13), Ex. 3, Order confirming Chapter 13 plan.

4

bankruptcy court approved Davis’s Chapter 13 plan in an

order dated December 3, 2004.7

On September 23, 2004, defendants removed the case to

federal court, claiming that Family Financial was

fraudulently included as a party to defeat diversity

jurisdiction. In her motion to remand, Davis contended

that Family Financial had colluded with the other

defendants to wrongfully obtain money from her. On

January 24, 2005, this court remanded the case to state

court for want of subject-matter jurisdiction, concluding

that Family Financial was not fraudulently joined as a

party. See Davis v. Ocwen Federal Bank, FSB, No.

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8. Brief in support of motion to remand (Doc. No.

14), Ex. C, Defendant’s discovery response.

9. Brief in support of motion to remand (Doc. No.

14), Ex. D, Plaintiff’s discovery response.

5

3:04cv902-T, slip. op. (M.D. Ala. January 24, 2005)

(Thompson, J.).

In the course of discovery, Ocwen Federal produced

two documents on February 18, 2005: a copy of a mortgage

note with Nations Credit, which was dated September 12,

1997, and a copy of a mortgage note with the Credit

Outlet, dated August 10, 1998.8

 On April 25, 2005, Davis

produced a copy of the Nations Credit note.9

On December 13, 2005, Ocwen Federal took Davis’s

deposition. At the deposition, Davis acknowledged that

she had taken out two separate mortgages on her property

and stated that Family Financial was involved in

originating the first mortgage, not the second loan,

which is the loan serviced by Ocwen Federal and the

subject of this litigation. At her deposition, Davis

also acknowledged that the claims at issue in this

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10. Brief in opposition to motion to remand (Doc. No.

13), Ex. 1, Deposition of Ethel Mae Davis.

6

litigation are a part of her Chapter 13 bankruptcy

estate.10

 On December 27, 2005, Ocwen Federal filed a notice of

removal, thereby removing this case for a second time,

contending that the information obtained during Davis’s

deposition demonstrated that this court did in fact

possess subject-matter jurisdiction. On December 29,

2005, Ocwen Federal filed a motion to stay this court’s

ruling pending the outcome of a motion to transfer this

case to a multi-district litigation panel. On December

30, 2005, Davis filed a motion to remand the case back to

state court. It is the court’s understanding that this

matter is currently set for trial in state court on

February 6, 2006.

III. DISCUSSION

Ocwen Federal advances several grounds for ‘reremoval’ of this case to federal court: (1) newly

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11. Ocwen Federal also urges that court at least stay

its ruling until the judicial panel on multi-district

litigation (“MDL”) decides whether this case should be

referred to an MDL court. Ocwen Federal contends that

this case is nearly identical to other cases that have

been sent to the MDL court, so it would serve judicial

efficiency to send this case to the MDL court. 

Although the cases may share similar questions of

fact, nothing in Ocwen Federal’s filings indicates that

those cases present the same jurisdictional issues

presented here. Because this court can readily dispense

with those legal questions, it better serves judicial

efficiency not to burden the MDL panel with Ocwen

Federal’s arguments for removal, which lack merit.

Moreover, since this case is set for trial next month in

state court, it hardly is efficient to make the parties

start again in the MDL proceedings.

7

discovered evidence of complete diversity of the parties;

(2) newly discovered evidence of federal bankruptcy

jurisdiction; and (3) exclusive federal jurisdiction

because these claims are barred from being pursued in

state court by the doctrine of res judicata.11

A. Diversity Jurisdiction

 Ocwen Federal contends that Davis’s deposition

testimony proves that Family Financial was fraudulently

joined, which would make the parties completely diverse.

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Subject-matter jurisdiction would therefore be proper

under 28 U.S.C.A. § 1332, and removal proper under 28

U.S.C.A. § 1441. Even assuming that Davis’s testimony

proves that Family Financial was fraudulently joined,

Ocwen Federal’s argument still fails.

 Under 28 U.S.C.A. § 1446(b), “a case may not be

removed on the basis of jurisdiction conferred by section

1332 of this title more than one year after commencement

of the action.” This court has previously concluded that

the one-year time limit is absolute and not subject to

exception. Russaw v. Voyager Life Insurance Co., 921 F.

Supp. 723, 724-25 (M.D. Ala. 1996) (Thompson, J.) (noting

that the statute contains no exceptions and that Congress

added the one-year limit to avoid substantial delay and

disruption of cases in state court that are nearing

trial). The Eleventh Circuit Court of Appeals has

reached the same conclusion in dicta. Burns v. Windsor

Insurance Co., 31 F.3d 1092, 1097 n.12 (11th Cir. 1994)

(noting that Congress recognized that the one-year limit

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9

might allow some plaintiffs to fraudulently avoid

diversity jurisdiction yet accepted that consequence).

Thus, under Russaw, removal is barred here because the

case was filed more than a year ago.

Section 1446(b) also provides that if a case was not

originally removable, a defendant may remove it within 30

days of obtaining pleadings or “other paper from which it

may first be ascertained that the case is one which is or

has become removable.” Ocwen Federal asserts that it

learned for the first time at Davis’s December 2005

deposition that she had two mortgages and that the

mortgage at issue in this litigation was not originated

by Family Financial. It further maintains that it could

not have discovered that Davis had two mortgages prior to

the deposition because all relevant documents were in

Davis’s exclusive possession. 

 The record belies this contention. On February 18,

2005, Ocwen Federal produced in discovery documents

relating to Davis’s mortgage, including copies of the

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Mortgage Outlet note and the Nations Credit note. Thus,

Ocwen Federal clearly had in its possession, as early as

February 18, 2005, copies of two different mortgage

notes. Ocwen Federal therefore could have “first ...

ascertained [that the case had] become removable,” 28

U.S.C.A. § 1446(b), at that time because it possessed

documents that showed Family Financial was involved with

a mortgage different from that at issue here and thus was

not a proper party. Ocwen Federal has therefore failed

to satisfy the 30-day time limit as well.

Since this court decided Russaw, however, the Fifth

Circuit Court of Appeals has held that the one-year limit

is subject to equitable exceptions. See Tedford v.

Warner-Lambert Co., 327 F.3d 423 (5th Cir. 2003). Ocwen

Federal asks this court to abandon its holding in Russaw,

adopt the Fifth Circuit rule, and extend that rule to 30-

day time limit. In the alternative, Ocwen Federal asks

the court to certify the question to the court of

appeals. 

Case 3:05-cv-01229-MHT-CSC Document 23 Filed 01/19/06 Page 10 of 20
12. In its reply brief, Ocwen Federal argues that the

two loan documents alone were not sufficient to prove

fraudulent joinder. Essentially, Ocwen Federal contends

that only Davis’s deposition testimony affirmatively

proves fraudulent joinder. See Ocwen Federal’s reply

brief (Doc. No. 19) at 6-7.

Davis’s deposition is not the slam-dunk Ocwen Federal

thinks it is. Davis admits that the Nations Credit note

is a distinct loan from the Mortgage Outlet note and that

Family Financial did not originate the Mortgage Outlet

loan, see Ocwen Federal’s reply brief (Doc. No. 19), Ex.

1, Deposition of Ethel Mae Davis, p. 250. But this is

precisely what the two separate loan documents prove.

Davis never testified that Family Financial was not

(continued...)

11

Neither course is necessary. Even if the one-year

and 30-day deadlines are subject to equitable exceptions,

the equities favor remand here because Ocwen Federal

could have met both deadlines through due diligence. In

her deposition, Davis testified that she had two

mortgages and that Family Financial originated the first

loan. Assuming that this proves that Family Financial

was fraudulently joined, Ocwen Federal could and should

have discovered that Davis had two loans and Family

Financial was not involved in the second by comparing the

two loan documents in its possession.12 Simply put, the

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12.(...continued)

involved in the second mortgage (even if she had, here

testimony would be speculative and inadmissible).

Thus, Ocwen Federal makes the exact argument for

fraudulent joinder now, based on Davis’s deposition

testimony that there were two loans, that it claims it

could not have made based on the two loan documents,

which proved there were two loans. Put another way, the

argument they make now could have been made at least as

early as February 2005, when they had two documents that

proved that there were two loans.

12

fact that Davis did not admit to having two mortgages

until December 2005 does not change the fact that the

documentary evidence made it quite clear, as of February

2005 at the latest, that two mortgages existed. 

Given that this litigation is about mortgage notes

and fees, one would expect counsel to scrutinize all

documents relating to mortgages in its possession. In

addition, it is somewhat disingenuous for Ocwen Federal

to argue that Davis hid from it facts about a mortgage

transaction that it was servicing. In short, even if the

deadlines in § 1446(b) are subject to equitable

Case 3:05-cv-01229-MHT-CSC Document 23 Filed 01/19/06 Page 12 of 20
13. Thus, this court need not decide whether the oneyear time limit or 30-day time limit are subject to

equitable exceptions. Under a strict interpretation or

the Fifth Circuit’s, Ocwen Federal still loses. Because

the resolution of this question does not affect the

outcome and because the court has no doubts that the

Eleventh Circuit will have another opportunity to decide

this question in the future, certification of this

question is not necessary.

14. Ocwen Federal contends that, although it was on

notice that Davis had filed for bankruptcy after filing

this lawsuit, it did not know that the lawsuit was part

of the bankruptcy estate and potentially a core

bankruptcy proceeding. See Brief in opposition to motion

(continued...)

13

exceptions, the court does not find equitable grounds

upon which to relieve Ocwen Federal here.13

B. Bankruptcy Jurisdiction

Ocwen Federal also contends that it learned for the

first time at Davis’s December 2005 deposition that this

lawsuit was an asset in Davis’s bankruptcy case.

Accordingly, it contends it could not have learned that

federal jurisdiction is proper under 28 U.S.C.A. § 1334,

and removal proper under 28 U.S.C.A. § 1452, until that

time.14 

Case 3:05-cv-01229-MHT-CSC Document 23 Filed 01/19/06 Page 13 of 20
14.(...continued)

to remand (Doc. No. 13) at 3, 17. 

14

This argument must fail. It is well-settled that all

pre-petition causes of action are property of the

bankruptcy estate. See generally Burnes v. Pemco

Aeroplex, Inc., 291 F.3d 1282 (11th Cir. 2002); 11

U.S.C.A. § 541(a)(1). Thus, it was a legal impossibility

that this claim would not be part of Davis’s bankruptcy

estate; Davis’s testimony was unnecessary, and in fact

irrelevant, to that question because the statute and

governing case law are clear. 

Indeed, defense lawyers have used this precise issue

as grounds for judicial estoppel against a plaintiff’s

claims. See e.g., Barger v. City of Cartersville, 348

F.3d 1289 (11th Cir. 2003) (upholding application of

judicial estoppel to employment-discrimination claim

where plaintiff filed an employment-discrimination

lawsuit; filed for bankruptcy, in which he failed to

disclose his lawsuit; and ultimately received a complete

discharge of his debts in bankruptcy). Just as courts

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15. Ocwen Federal’s argument that Davis did not

notify Ocwen Federal’s litigation counsel that this claim

was an asset of the bankruptcy estate is beside the

point. As long as Ocwen Federal’s litigation counsel

knew that Davis had filed for bankruptcy after filing

this suit (which knowledge they admit, see Brief in

opposition to motion to remand (Doc. No. 13) at 8), they

were on notice, by virtue of the Bankruptcy Code and case

law, that the claims were part of Davis’s bankruptcy

estate.

15

expect debtors to know that unliquidated claims are

assets of a bankruptcy estate, bankruptcy creditors

should be expected to know the law. Defendants cannot

have their cake, by penalizing plaintiffs who do not

disclose unliquidated claims, and eat it too, by claiming

ignorance that such claims are assets of the estate. 

Ocwen Federal therefore should have been aware of

this ground of federal jurisdiction as soon as it learned

of Davis’s bankruptcy petition.15 Davis’s Chapter 13

plan, which mandated bi-weekly payments to Ocwen Federal

to pay down the fees and arrearages disputed in this

litigation, was confirmed on December 3, 2004. In

essence, Ocwen Federal sat on this potential ground for

removal for over a year. 

Case 3:05-cv-01229-MHT-CSC Document 23 Filed 01/19/06 Page 15 of 20
16

By its plain language, the 30-day requirement of

§ 1446(b) applies to cases removed under § 1452. Thus,

Ocwen Federal’s failure to remove the case within 30 days

of learning of Davis’s bankruptcy petition prevents

removal at this time. Even assuming the 30-day bar is

subject to equitable exceptions, the equities cut against

Ocwen Federal here. Ocwen Federal’s failure to act

within the 30-day window are attributable either to

ignorance of the law or failure to timely act. Neither

explanation supports equitable relief. 

In any event, § 1452(b) allows courts to remand cases

removed under § 1334 (bankruptcy jurisdiction) on

equitable grounds. The court elects to remand the case

to state court, as least to the extent Ocwen Federal

relies on bankruptcy-removal jurisdiction, solely on the

discretion afforded by this provision. Ocwen Federal

should have known of this ground for removal and acted

much earlier than it did. Allowing removal at this point

would adversely affect Davis’s trial in state court, and

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16. Claim preclusion serves to bar re-litigation of

those matters which were or could have been litigated as

part of an earlier case. Courts, therefore, evaluate the

doctrine’s applicability by reference to the following

four inquiries: (1) whether the prior judgment was

rendered by a court of competent jurisdiction; (2)

whether the prior judgment was final and on the merits;

(3) whether there exists an identity of both parties or

their privies; and (4) whether the causes of action are

identical. Richardson v. Alabama State Bd. of Educ., 935

F.2d 1240, 1244 (11th Cir. 1991). The causes of action

(continued...)

17

it does not appear that there is any just reason why

Ocwen Federal should be allowed to remove so late in the

game in order to avoid a state court trial. Balancing

the equities, a remand is appropriate pursuant to

§ 1452(b).

C. Res Judicata

Ocwen Federal finally contends that Davis cannot

challenge the validity of the mortgage fees in state

court because a confirmed Chapter 13 bankruptcy plan

binds the debtor and each creditor. See 11 U.S.C.A.

§ 1327(a). According to Ocwen Federal, the doctrine of

res judicata, or claim preclusion,16 therefore bars

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16.(...continued)

are considered identical if the legal theories and claims

arise out of the same nucleus of operative fact. NAACF

v. Hunt, 891 F.2d 1555, 1561 (11th Cir. 1990). 

17. In fact, claim preclusion is probably not even

appropriate here. Claim preclusion is certainly

appropriate when a party challenges a particular claim in

the bankruptcy plan after the plan has been confirmed and

had failed to raise that objection during the plan

confirmation process. However, this court has not found

(continued...)

18

Davis’s state lawsuit. Ocwen Federal concludes that

removal is proper because only a federal district court

or a bankruptcy court may revisit the confirmation of

Davis’s Chapter 13 plan. 

To be sure, courts have concluded that confirmed

Chapter 13 plans have res judicata effect, see In re

Bateman, 331 F.3d 821, 824, 825 n.4 (11th Cir. 2003), and

that a motion to reconsider filed with the bankruptcy

court is the proper way to dispute a claim’s validity

after confirmation. See In re Bernard, 189 B.R. 1017,

1021 (Bankr. N.D. Ga. 1996) (Drake, J.). However, Ocwen

Federal’s argument that the plan confirmation precludes

Davis’s state claims17 and therefore confers federal

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17.(...continued)

a case where claim preclusion operated to bar a suit that

was filed before the bankruptcy petition was filed and

was included as an asset in the bankruptcy estate. 

That is precisely what happened here: The bankruptcy

court confirmed this lawsuit, which challenges Ocwen

Federal’s claim, as an asset of the estate. It is

illogical to conclude that the bankruptcy court

conclusively determined that the fees and arrearages at

issue here are proper when that court also confirmed this

lawsuit, which claims those debts were fraudulently

generated or otherwise invalid, to be an asset. The

bankruptcy court implicitly acknowledged that the

creditor claims of Ocwen Federal were questionable.

19

jurisdiction is without merit because “claim preclusion

by reason of a prior federal judgment is a defensive plea

that provides no basis for removal under [28 U.S.C.A]

§ 1441(b).” Rivet v. Regions Bank of Louisiana, 522 U.S.

470, 478 (1998); Transmouth Fin. Corp. v. Murray, 311

B.R. 99, 105 (M.D. Ala. 2004) (Albritton, J.). Thus,

Ocwen Federal’s § 1327 claim-preclusion argument may

appropriately be brought in state court but cannot

support removal to this court. 

* * * *

Case 3:05-cv-01229-MHT-CSC Document 23 Filed 01/19/06 Page 19 of 20
For the foregoing reasons, it is the ORDER, JUDGMENT,

and DECREE of the court that plaintiff Ethel Mae Davis’s

motion to remand (Doc. No. 8) is granted and that,

pursuant to 28 U.S.C.A. §§ 1447 (c) and 1452(b), this

cause is remanded to the Circuit Court of Macon County,

Alabama.

It is further ORDERED that defendant Ocwen Federal

Bank, FSB’s motion to stay (Doc. No. 3) is denied.

The clerk of the court is DIRECTED to take

appropriate steps to effect the remand.

Done, this the 19th day of January, 2006.

 /s/ Myron H. Thompson 

UNITED STATES DISTRICT JUDGE

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