Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_16-cv-02514/USCOURTS-casd-3_16-cv-02514-0/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

SUSANA MADRIGAL,

Plaintiff,

CASE NO. 16cv2514-LAB (JMA)

ORDER OF REMAND

vs.

WELLS FARGO BANK, et. al.,

Defendants.

Susana Madrigal sued Clear Recon and Wells Fargo in state court for claims related

to the foreclosure of her home. Madrigal and Clear Recon are both California citizens.1

Despite the conspicuous lack of diversity, Wells Fargo removed the action to federal court.

The bank’s argument boils down to this: the Court should ignore Clear Recon’s citizenship

because Madrigal doesn't really have any legal claims against the company—she just added

Clear Recon to the action to avoid a federal forum. The Court disagrees. 

Background

About ten years ago, Madrigal obtained a loan secured by a deed of trust to her home

in Oceanside, California. Wells Fargo eventually became the lender and Clear Recon

became the trustee. The complaint is short on plot, but suffice it to say that a few years in,

Madrigal couldn't make her loan payments. Sometime after, she says Clear Recon

conducted a “sham Trustee Sale in which it ‘sold’” her home to Wells Fargo.

1

 Despite Wells Fargo’s 853 banks in California, the bank is only a citizen of South

Dakota, the site of its “main office.” Rouse v. Wachovia, 747 F.3d 707 (9th Cir. 2014); see

https://www.wellsfargo.com/locator/#ca.

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Madrigal sued Clear Recon and Wells Fargo for state law claims: breach of contract

and good faith, unfair business practices, and violations of the Perata Mortgage Relief Act.

She requested damages and injunctive relief. The amount in controversy isn’t an issue. The

Court only needs to decide if complete diversity exists.2

Legal Standard

Out-of-state citizens don't have to defend lawsuits in state court: they can move the

battle to a federal field to allay their concerns that the “state courts might favor” the

“home-state litigants.” Exxon Mobil Corp. v. Allapattah, 545 U.S. 546, 553–54 (2005). But

defendants may only remove if they can show that the federal court would have had original

jurisdiction. 28 U.S.C. § 1441. Removal based on diversity requires that no plaintiff or

defendant share the same citizenship. 28 U.S.C. § 1332. “Federal jurisdiction must be

rejected if there is any doubt as to the right of removal.” Gaus v. Miles, 980 F.2d 564, 566

(9th Cir. 1992). 

Analysis

A. Nominal Party

Courts ignore the citizenship of nominal parties; that is, parties that aren’t true

adversaries because they have “nothing at stake” in the litigation. Strotek Corp. v. Air Transp.

Ass'n., 300 F.3d 1129, 1133 (9th Cir. 2002). Trustees often qualify as nominal parties

because they act as neutral middlemen between lenders and borrowers. But sometimes, as

Wells Fargo admits, trustees aren’t nominal parties—like when a homeowner thinks a trustee

did something wrong during a foreclosure sale.3

That's the case here: “Plaintiff sued Defendant CLEAR RECON for wrongful conduct,

acts and omissions for which Plaintiff believes these Defendants are responsible.”4

Specifically, Madrigal blames Clear Recon for failing to comply with a covenant in the Deed

of Trust, filing outdated declarations that contained “false statements,” recording a “defective

2

 The Court takes judicial notice of Madrigal's Opposition to Clear Recon's Declaration

of Non-Monetary Status. Dkt. 4-4 Ex. 1.

3

 Opposition, Dkt. 7 at 4.

4

 Dkt. 4-4, Ex. 1.

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Notice of Default,” and “acting in concert” with Wells Fargo to conduct a “sham Trustee

sale.”5

 Those claims may not pan out. But Madrigal’s not suing Clear Recon in name only—

she’s accusing the trustee of serious wrongdoing.

B. Fraudulent Joinder

Wells Fargo also argues that Madrigal fraudulently joined Clear Recon, so the Court

shouldn't consider the trustee’s citizenship. “If a 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, the joinder of the resident defendant is fraudulent.” McCabe v. General Foods Corp.,

811 F.2d 1336, 1339 (9th Cir.1987) (emphasis added). Wells Fargo fails to convince the

Court that it's obvious Madrigal has no claims against Clear Recon.

Wells Fargo argues that Clear Recon “literally had no involvement with the Notice of

Default” or the “preforeclosure contacts” with Madrigal. Those assertions may prove true. But

Madrigal says Clear Recon did play a role—filing false documents and conducting a sham

foreclosure sale. And Wells Fargo admits in its notice of removal that Clear Recon was

“responsible for recording foreclosure documents and conducting the trustee’s sale.”6

 At this

stage, the Court accepts Madrigal's allegations as true.7

Alternatively, Wells Fargo says that “any foreclosure activity” Clear Recon did take is

privileged under California Civil Code § 2924. But if Clear Recon's operating under the aegis

of section 2924, it's not obvious. Wells Fargo’s opposition says little about how this statute

applies, nor does it cite a single case for support. However, the bank did reference Kachlon

v. Markowitz in its notice of removal for the proposition that the trustee’s activities are

privileged “absent a showing of malice.” Kachlon v. Markowitz, 168 Cal. App. 4th 316, 339

(2008). Wells Fargo says Madrigal didn't offer an “allegation of malice.”8

/ / / 

5 Id.; Complaint, Dkt. 1-2, Ex. A.

6

 Notice of Removal, Dkt. 1 at 7.

7

 Wells Fargo cites its signature on a Declaration of Compliance, but doesn’t say why

that means all of Madrigal’s claims against Clear Recon obviously fail. Dkt. 7 at 5. 

8 Id.

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But Madrigal says Clear Recon acted in “bad-faith” and with “utter disdain,” knowingly

filed “false statements” in violation of California Penal Code § 115, and conducted a “sham

Trustee Sale.”9

 That sounds like malice. See Perez v. Wells Fargo Bank, 929 F. Supp. 2d

988, 1005 (N.D. Cal. 2013) (trustee’s actions not privileged because false statements could

show malice). Under Madrigal’s telling of the story, Clear Recon isn't acting like a neutral

trustee entitled to statutory protection for non-discretionary duties.

Wells Fargo says Madrigal’s section 2932.5 claims fail because that provision only

applies to mortgages, not deeds of trust. But, as discussed, Madrigal’s allegations aren’t

limited to that provision. Moreover, Madrigal identifies three cases where the courts

remanded similar suits and rejected similar arguments from Wells Fargo that the borrower

fraudulently joined nominal parties.10 Wells Fargo didn't even attempt to distinguish these

cases. Instead, the bank cites one of the cases, Silva v. Wells Fargo, for language it likes,

but ignores the holding: “Because Defendants have not met their burden to show that [the

trustee] was a nominal defendant,” the court “lacks subject matter jurisdiction over this

matter, and the case must therefore be remanded.” Silva, 2011 WL 2437514, at *6. This

Court reaches the same conclusion.

Summary

Because Clear Recon isn’t a sham defendant, complete diversity is lacking and the

Court doesn’t have jurisdiction.11 The action is remanded to San Diego Superior Court. Since

the Court lacks jurisdiction, it denies the motion to dismiss as moot.

IT IS SO ORDERED.

DATED: January 31, 2017

___________________________________

HONORABLE LARRY ALAN BURNS

United States District Judge 

9

 Dkt. 1-2, Ex. A; Dkt. 4-4, Ex. 1.

10 See Silva v. Wells Fargo, 2011 WL 2437514 (C.D. Cal. June 16, 2011); Couture v.

Wells Fargo, 2011 WL 3489955 (S.D. Cal. Aug. 9, 2011); and Perez v. Wells Fargo, 929 F.

Supp. 2d 988 (N.D. Cal. 2013).

11 Wells Fargo also argues the Court shouldn’t remand the case because Madrigal

served her motion 25 days before the hearing instead of the required 28. Wells Fargo fails

to articulate how three days prejudiced the bank or how it affects the Court’s jurisdiction.

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