Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_13-cv-02030/USCOURTS-caed-2_13-cv-02030-0/pdf.json

Nature of Suit Code: 290
Nature of Suit: Other Real Property Actions
Cause of Action: 28:1444 Petition for Removal- Foreclosure

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UNITED STATES DISTRICT COURT 

EASTERN DISTRICT OF CALIFORNIA 

FIDELITY NATIONAL TITLE 

COMPANY, 

Plaintiff, 

v. 

U.S. SMALL BUSINESS 

ADMINISTRATION; PLACER COUNTY 

ENVIRONMENTAL HEALTH; ALLEN R. 

FRUMKIN; FREDERICK W. HODGSON; 

LINDA HODGSON; and DOES 1 through 

20, inclusive, 

Defendants. 

No. 2:13-cv-02030-KJM-AC 

ORDER 

This matter comes before the court on defendants’ motion to amend the answer 

and assert a counterclaim, filed on December 18, 2013, and defendants’ motion to join parties, 

filed on December 19, 2013. The court submitted the matter without hearing on January 13, 

2014. For the following reasons, defendants’ motions are hereby GRANTED. 

I. BACKGROUND 

The subject of the interpleader before the court is the surplus proceeds from a nonjudicial foreclosure sale of property in Kings Beach, California. Plaintiff in the interpleader, 

Fidelity National Title Company (“Fidelity”), “was the duly appointed trustee of the nowCase 2:13-cv-02030-KJM-AC Document 32 Filed 05/12/14 Page 1 of 17
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foreclosed deed of trust . . . for the [p]roperty.” (Notice of Removal of Action Pursuant to 28 

U.S.C. § 1444 (“Notice of Removal”), Ex. A at 6, ECF No. 1.)1 Defendants in the interpleader, 

Frederick and Linda Hodgson (“the Hodgsons”), allege that they “are and were the equitable 

owners of real property” in Kings Beach, California, prior to the non-judicial foreclosure sale on 

November 16, 2012. (Mot. To Amend Answer of Defs. to Compl. in Interpleader for Surplus 

Proceeds of Trustee’s Sale (“Mot. to Amend”), Ex. 1 ¶ 1, ECF No. 8; Notice of Removal, Ex. A 

at 7.) The Hodgsons and the additional defendants in this action, U.S. Small Business 

Administration (“SBA”), Placer County Environmental Health and Allan R. Frumkin, each 

“submitted . . . written claims of entitlement to the remaining surplus foreclosure proceeds.” 

(Notice of Removal, Ex. A at 8.) 

On January 15, 2013, the Hodgsons filed a complaint in Placer County against 

East Bay Investors, LLC (“EBI”), asserting six claims related to the mortgage and the foreclosure. 

(Mem. P.&A. of Fidelity Nat’l Title Co. in Opp’n to Mot. Of Defs. Frederick W. Hodgson and 

Linda Hodgson to Amend Answer and Assert Countercl. (“Opp’n”) 3:2-7, ECF No. 14.) Those 

claims were: (1) breach of contract, (2) fraud, (3) intentional infliction of emotional distress, (4) 

negligent misrepresentation, (5) violations of California Business and Professions Code section 

17200, and (6) wrongful foreclosure. (Notice of Removal, Ex. A at 36.) EBI is a limited liability 

company, which the Hodgsons allege was formed “for the sole purpose of purchasing [the 

Hodgsons’] note, deed of trust and other existing loan documents pertaining to the [Kings Beach] 

property.” (Mot. to Amend, Ex. 1 ¶¶ 7, 9.) 

While the posture of the state court proceeding is not entirely clear, there 

apparently have been several bankruptcy filings, both before and after the home was foreclosed 

on in November 2012. (Id. ¶ 101-104; Opp’n at 3:13-4:1.) Plaintiffs allege in the proposed 

amended complaint that “[w]hile the automatic stay [pursuant to the Bankruptcy Code] was in 

place as a result of the second filing, [c]ounterdefendants foreclosed on the [p]roperty . . . .” 

 1 Exhibit A in the Notice of Removal contains the entire file from the interpleader in state 

court, with no numbered Exhibit pages. The court thus cites to the page number assigned on the 

court’s docket. 

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(Mot. to Amend, Ex. 1 ¶ 103.) EBI, defendant in the Hodgsons’ state court proceeding, attempted 

to remove the state action to an adversary proceeding in bankruptcy, but the case was remanded 

to state court. (Opp’n at 3:16-19; Request for Judicial Notice (“RJN”), Exs. C & D, ECF No. 15.) 

At this point, it appears the state case is still pending. (Opp’n at 4:2-4 (“. . . [Fidelity] 

understands that the Placer County Action is currently pending and active.”).) 

On July 18, 2013, Fidelity sent a letter to the Hodgsons informing them that 

Fidelity was to disburse the surplus proceeds to a creditor, SBA. (Notice of Removal, Ex. A at 9.) 

On July 28, 2013, Frederick Hodgson faxed a letter to Fidelity indicating he would 

“continue to support options to correct those wrongfull [sic] actions of Fidelity National Title 

Company.” (Id. at 87.) 

On August 14, 2013, Fidelity filed an action in interpleader in Placer Superior 

Court against SBA, Placer County Environmental Health, Allan R. Frumkin, and the Hodgsons. 

(Id. at 5.) Fidelity requested that the court order the parties “to litigate their respective claims visa-vis each other and their rights to the surplus foreclosure proceeds.” (Id. at 11.) On September 

30, 2013, SBA removed the interpleader to federal district court, based on 28 U.S.C. § 1444. 

(Notice of Removal, ECF No. 1.) On October 25, 2013, Fidelity filed in this court a notice of 

default judgment in the state interpleader action against Placer County Environmental Health. 

(Notice of Entry of Default in State Court Action, ECF No. 4.) On October 30, 2013, the 

Hodgsons filed an answer to the complaint in interpleader, but did not assert a counterclaim. 

(Answer to Compl. in Interpleader for Surplus Proceeds of Trustee’s Sale (“Answer”), ECF No. 

5.) 

On December 18, 2013, the Hodgsons filed a motion to amend to assert 

compulsory counterclaims, including six claims against Fidelity and four third parties, as well as 

one claim against an additional third party. (Mot. to Amend, ECF No. 8.) The following day, 

The Hodgsons filed a motion to join EBI, John C. Rogers (“Rogers”), Ferrari Investments, Inc. 

(“Ferrari Investments”), David J. Ferrari (“Ferrari”), and Bank of the West, as necessary parties to 

the counterclaim. (Mot. to Join Necessary Parties (“Mot. to Join”), ECF No. 9.) 

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The Hodgsons allege that Ferrari, “the managing member of Ferrari 

Investment[s],” and Ferrari Investments, “a limited liability company . . . in Placer, California,” 

“ha[ve] been actively attempting to purchase [the Kings Beach] [p]roperty since at least the year 

2000.” (Mot. to Amend, Ex. 1 ¶¶ 5, 6.) 

The Hodgsons claim that Bank of the West, their “original lender and beneficiary 

of the deed of trust,” (id. ¶ 10) “disclose[d] their private nonpublic personal information regarding 

their [n]ote and other existing loan documents to . . . [inter alia] Ferrari, Rogers, Ferrari 

Investments, and EBI” (id. ¶ 11). 

Fidelity is a named defendant in the Hodgsons’ complaint because it “was acting 

as and is the agent of . . . Ferrari, Rogers, Ferrari Investments, and EBI.” (Id. ¶ 15.) 

The general fact pattern at issue in the defendants’ complaint is as follows. The 

Hodgsons allege that Fidelity and the parties to be joined were involved in a conspiratorial chain 

of events resulting in the parties’ “fraudulently filing and recording . . . false instruments and 

converting the [Kings Beach] [p]roperty.” (Id. ¶ 1.) They claim that “EBI was organized . . . by 

. . . Rogers,” and that “Ferrari, Rogers, and Ferrari Investments collaborated and conspired with 

each other for the purpose of making a malevolent plan to steal [the Hodgsons’] [p]roperty . . . 

after [the Hodgsons] rejected . . . Ferrari Investments and Ferrari’s latest offer to purchase the 

property.” (Id. ¶ 9.) They further allege that “[c]ounterdefendants formed EBI for the sole 

purpose of purchasing [the Hodgsons’] note, deed of trust and other existing loan documents 

pertaining to the [Kings Beach] property.” (Id.) Indeed, the Hodgsons allege, “Ferrari, Rogers, 

and Ferrari Investments . . . contact[ed] . . . Bank of the West and . . . purchase[d] [the 

Hodgsons’] note, deed of trust and other existing loan documents. Thereafter, despite [the 

Hodgsons’] not being in default, in concert with . . . Fidelity, foreclosed on [the Kings Beach] 

[p]roperty . . . .” (Id.) They further “allege that they became aware of . . . fatal defects within the 

[i]nstrument(s) on or about February 1st, 2013.” (Id. ¶ 57.) 

On January 3, 2014, Fidelity filed a Request for Judicial Notice in support of its 

Opposition. (RJN.) 

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II. JUDICIAL NOTICE 

As a preliminary matter, the court grants plaintiff’s request for judicial notice of 

documents regarding the state court proceeding. FED. R. EVID. 201; Harris v. Cnty. of Orange, 

682 F.3d 1126, 1132 (9th Cir. 2012) (“We may take judicial notice of undisputed matters of 

public record, including documents on file in federal or state courts.”) (internal quotations 

omitted). Because each exhibit in Fidelity’s request is a document filed with a federal or state 

court pertaining to this matter, and defendants have not opposed the motion, the court grants the 

motion in its entirety. (RJN at 2:11-3:13.) 

III. LEGAL STANDARD 

Federal Rule of Civil Procedure 15(a)(2) states “[t]he court should freely give 

leave [to a party to amend its pleading] when justice so requires,” and the Ninth Circuit has 

“stressed Rule 15's policy of favoring amendments.” Ascon Properties, Inc. v. Mobil Oil Co., 

866 F.2d 1149, 1160 (9th Cir.1989). “In exercising its discretion ‘a court must be guided by the 

underlying purpose of Rule 15—to facilitate decision on the merits rather than on the pleading 

or technicalities.’” DCD Programs, Ltd. v. Leighton, 833 F.2d 183, 186 (9th Cir.1987) (quoting 

United States v. Webb, 655 F.2d 977, 979 (9th Cir.1981)). 

However, “the liberality in granting leave to amend is subject to several 

limitations. Leave need not be granted where the amendment of the complaint would cause the 

opposing party undue prejudice, is sought in bad faith, constitutes an exercise in futility, or 

creates undue delay.” Ascon Properties, 866 F.2d at 1160 (internal citations omitted). “Without 

a showing of prejudice, bad faith, or futility, delay on its own is not enough to justify denial of a 

motion to amend.” Onions Etc., Inc. v. Z & S Fresh, Inc., 1:09-CV-00906-OWW, 2011 WL 

2433354 (E.D. Cal. June 13, 2011) (citing Bowles v. Reade, 198 F.3d 752, 758 (9th Cir.1999)). 

However, futility of amendment can, by itself, justify the denial of a motion for 

leave to amend. Bonin v. Calderon, 59 F.3d 815, 845 (9th Cir. 1995). A court may deny leave if 

it cannot acquire jurisdiction. Union Pac. R.R. Co. v. Coast Packing Co., 236 F. Supp. 2d 1130, 

1137 (C.D. Cal. 2002) (“. . . [A]mendment would be futile in light of our conclusion that we lack 

jurisdiction . . . .”). 

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The parties mistakenly refer to the claims asserted by the Hodgsons as “a 

counterclaim” in the singular. (Opp’n at 2:13; Mot. to Amend 1:27-28.) In fact, the Hodgsons 

have moved to assert seven causes of action, which they seek to amend as a single “compulsory 

counterclaim” to the instant action. (Mot. to Amend 2:17.) However, each cause of action 

constitutes a separate claim, and only those claims against the counterclaimants’ “opponent” fall 

under Rule 13 as counterclaims. Union Paving Co. v. Downer Corp., 276 F.2d 468, 470 (9th Cir. 

1960) (“Rule 13(a) provides that any causes of action which a party has against his opponent and 

which arise out of the same transaction or occurrence as the opponent's claim must be pleaded as 

counterclaims in a federal action.”). 

The seventh cause of action for negligence is asserted against only Bank of the 

West. (Mot. to Amend, Ex. 1 at 30:24-26.) Because Bank of the West is not an “opponent” in 

the instant action, this claim is not a counterclaim and will be addressed separately below. Union 

Paving Co., 276 F.2d at 470. 

Plaintiff asserts three arguments in opposition to defendant’s motion to amend: (1) 

the motion is untimely; (2) defendants filed with unreasonable delay; and (3) granting the motion 

would unfairly prejudice the plaintiff. (Opp’n at 4-5.) Plaintiff asserts that because defendants’ 

proposed counterclaim is compulsory, the motion is untimely. (Id. at 4.) Because plaintiff’s first 

two arguments are one and the same, they will both be addressed in the court’s consideration of 

undue delay. 

However, because any lack of subject matter jurisdiction would render amendment 

futile, the court will address (1) its subject matter jurisdiction over the counterclaims defendants 

move to assert, and (2) its subject matter jurisdiction and permissive joinder over the claim 

against Bank of the West. It will then address Fidelity’s delay and prejudice arguments. The 

court lastly addresses joinder of the parties to the counterclaims. 

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IV. ANALYSIS 

A. Futility of Amendment 

1. Subject Matter Jurisdiction 

a. Compulsory Counterclaims 

The first six claims the Hodgsons assert are counterclaims, as they are asserted 

against Fidelity, alleged agent of four other counterdefendants, namely EBI, Ferrari Investments, 

LLC., David J. Ferrari, John C. Rogers; defendants seek to join all as necessary parties, as 

counterdefendants to these six claims. (Mot. to Amend, Ex. 1 at 1:22-26; “Mot. to Join” at 3:15-

17.) Those claims are: Cancellation of Instruments (Mot. to Amend, Ex. 1 at 15:7-9); Breach of 

Contract (id. at 18:1-3); violation of Equal Credit Opportunity Act (id. at 19:12-15); Elder Abuse 

under California’s Civil Code (id. at 20:18-21); Elder Abuse under California’s Welfare & 

Institutions Code (id. at 23:1-4); and violations of California’s Business and Professions Code (id. 

at 23-25). 

The traditional rule is that federal courts have supplemental jurisdiction over 

compulsory counterclaims, because a plaintiff would otherwise lose his opportunity to be heard 

on those claims. Baker v. Gold Seal Liquors, Inc., 417 U.S. 467, 469 n.1 (1974); Sparrow v. 

Mazda Am. Credit, 385 F. Supp. 2d 1063, 1066 (E.D. Cal. 2005). 

Thus, the first question is whether the counterclaims here are compulsory. If they 

are instead permissive, “the next question is whether the court should exercise its discretion to 

decline to assert supplemental jurisdiction over those claims.” Sparrow. 385 F. Supp. 2d at 

1068.2

 Section 1367(c), therefore, applies to such claims, and the court may in its discretion 

 

2 The Ninth Circuit has not definitively ruled on the question whether § 1367 jurisdiction can 

cover permissive counterclaims. The Seventh Circuit has held that 28 U.S.C. § 1367 “case or 

controversy” analysis is not married to the compulsory and permissive distinction in Rule 15. 

Channell v. Citicorp Nat. Servs., Inc., 89 F.3d 379, 385 (7th Cir. 1996) (“Now that Congress has 

codified the supplemental jurisdiction in § 1367(a), courts should use the language of the statute 

to define the extent of their powers.”). Within the Ninth Circuit, trial courts are split. One district 

court in Arizona found if the counterclaim is permissive, supplemental jurisdiction cannot attach. 

Hart v. Clayton-Parker & Associates, Inc., 869 F. Supp. 774, 776 (D. Ariz. 1994). In decisions 

this court finds persuasive, other courts, including the court in Sparrow, have rejected Hart and 

followed the Seventh Circuit. Sparrow, 385 F. Supp. 2d at 1070; Koumarian v. Chase Bank USA, 

N.A., C-08-4033 MMC, 2008 WL 5120053 (N.D. Cal. Dec. 3, 2008); Avery v. First Resolution 

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decline to exercise jurisdiction if, for instance, the counterclaim would substantially predominate 

over the original claim. 28 U.S.C. § 1367(c)(2). If the court finds that section 1367(c)(2) applies 

to the six counterclaims and additional third party claim asserted, and denies jurisdiction over the 

claims, then the amendment would be futile. Am. W. Airlines, Inc. v. GPA Grp., Ltd., 877 F.2d 

793, 801 (9th Cir. 1989) (amendment was futile because allegations to establish jurisdiction 

contradicted sworn affidavits, thus failing to establish jurisdiction); see also Union Pac. R.R. Co., 

236 F. Supp. 2d at 1137; Huff v. Neal, 12-20762, 2014 WL 274500 (5th Cir. Jan. 27, 2014); 

Gonzalez v. United States, CV 12-00375-TUC-JGZ, 2013 WL 308762 (D. Ariz. Jan. 25, 2013). 

“Rule 13(a) provides that any causes of action which a party has against his 

opponent and which arise out of the same transaction or occurrence as the opponent's claim must 

be pleaded as counterclaims in a federal action. Such pleading is compulsory. If a party fails to 

plead these causes of action as counterclaims, he is held to have waived them and is precluded by 

res judicata from ever suing upon them again.” Union Paving Co., 276 F.2d at 470 (internal 

citations omitted). While compulsory counterclaims that are “the subject of pending litigation in 

another court” are excepted from the waiver rule under 13(a), the exception does not prohibit the 

litigant from asserting the claim and the claims are still treated as compulsory counterclaims for 

amendment purposes. Id. Thus, even though two causes of action asserted in this motion are 

subject to pending litigation in Placer County Superior Court, the practical effect of this exception 

is immaterial here. (RJN at 5:19-21, 8:15-17, Ex. A, ECF No. 15.)3

 

In determining whether a claim arises out of the same transaction or occurrence, 

the Ninth Circuit applies “‘the logical relationship test for compulsory counterclaims.’” Mattel, 

 

Mgmt. Corp., 06-1812 HA, 2007 WL 1560653 (D. Or. May 25, 2007), aff’d, 561 F.3d 998 (9th 

Cir. 2009); Mostin v. GL Recovery, LLC, SACV090650AGANX, 2010 WL 668808 (C.D. Cal. 

Feb. 19, 2010). 

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 However, if the state court were to decide the pending case, that court’s decision would 

preclude this court’s decision regarding the matter. Nevada Eighty-Eight, Inc. v. Title Ins. Co. of 

Minnesota, 753 F. Supp. 1517, 1522 (D. Nev. 1990). The record is unclear as to both the 

likelihood and propinquity of a state court ruling on the pending case in the Superior Court of 

Placer County, Case No. SCV0031950. (Notice of Removal, Ex. A at 36.) 

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Inc. v. MGA Entm’t, Inc., 705 F.3d 1108, 1110 (9th Cir. 2013) (quoting In re Pegasus Gold 

Corp., 394 F.3d 1189, 1195–96 (9th Cir. 2005)). “‘A logical relationship exists when the 

counterclaim arises from the same aggregate set of operative facts as the initial claim, in that the 

same operative facts serve as the basis of both claims or the aggregate core of facts upon which 

the claim rests activates additional legal rights otherwise dormant in the defendant.’” Id. at 1110 

(quoting Pegasus Gold, 394 F.3d at 1196). 

The Ninth Circuit applies a “liberal reading of the ‘transaction or occurrence’ 

standard.” Pochiro v. Prudential Ins. Co. of America, 827 F. 2d 1246, 1252 (9th Cir. 1987). One 

other court in the Eastern District has interpreted Circuit authority to find that a counterclaim 

cannot be compulsory by way of an affirmative defense. Sparrow, 385 F. Supp. 2d at 1069 n.3. 

Here, the parties agree that the counterclaims arise from the same aggregate set of 

facts, namely “the foreclosure sale of the real property which generated the surplus funds at the 

trustee’s sale,” which is the subject of the instant action. (Mot. to Amend 2:1-2; Opp’n at 2:27 

3:1.) Although the parties agree, the court still looks to the original claim to determine whether or 

not the counterclaims are based on the same set of facts. Pochiro, 827 F. 2d at 1250. 

The underlying claim in this case is an Interpleader for Surplus Proceeds of 

Trustee’s Sale, in which the plaintiff, Fidelity, does not claim an interest. (Notice of Removal, 

Ex. A.) Under these circumstances, it is unlikely that the claims regarding wrongful acts of the 

parties involved in an allegedly wrongful foreclosure action are categorically compulsory to the 

interpleader action regarding surplus funds from the sale. See Springate v. Weighmasters 

Murphy, Inc. Money Purchase Pension Plan, 217 F. Supp. 2d 1007, 1014 (C.D. Cal. 2002), aff’d 

sub nom. Springate v. Weighmasters Murphy, Inc., 73 F. App’x 317 (9th Cir. 2003) (a claim for 

breach of fiduciary duties against the interpleader plaintiff was not compulsory because it 

concerned a “decline in the value of [the deceased’s] vested interest . . .” and not the legal rights 

to the assets at issue in the interpleader); 7 Charles Alan Wright & Arthur R. Miller, Federal 

Practice and Procedure § 1715 (3d ed. 2011) (a counterclaim to an interpleader is usually 

compulsory, and the court therefore has supplemental jurisdiction over it, “when the stakeholder 

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is an interested party and when one of the claimants asserts that the stakeholder is independently 

liable to him”). 

The facts at issue in the original interpleader claim here relate to the priority order 

of liens on the property existing before the foreclosure, as delineated in California Civil Code § 

2924k. (Notice of Removal, Ex. A at 8-9.) This dispute includes the primary issues of (1) 

whether the claims of entitlement were timely submitted, and (2) whether Fidelity exercised its 

due diligence in determining the order of priority of the liens. (Notice of Removal, Ex. A at 8; 

SBA’s Answer to Compl. in Interpleader (“SBA’s Answer”) ¶¶ 14, 17, ECF No. 3.) The facts at 

issue in the counterclaims do not implicate the order of priority of competing interests, but rather 

the allegedly wrongful acts leading to the foreclosure in the first place. (Mot. to Amend, Ex. 1.) 

Thus, it is not so clear that the sale itself arises from the same aggregate core of facts as the 

interpleader. 

However, equitable principles generally apply.in this context. Lee v. W. Coast Life 

Ins. Co., 688 F.3d 1004, 1012 (9th Cir. 2012) (“It is generally recognized that interpleader 

‘developed in equity and is governed by equitable principles.’”) (quoting Aetna Life Ins. Co. v. 

Bayona, 223 F.3d 1030, 1033–34 (9th Cir. 2000)). Thus, the court can infer from the Hodgsons’ 

averment of equitable estoppel as a defense, that the facts leading up to the foreclosure sale will 

be implicated. (Hodgsons’ Answer to the Compl. (“Hodgsons’ Answer”) at 5:16-17, ECF No. 5.) 

The operative facts of the counterclaims are at issue in the interpleader by way of the Hodgsons’ 

defense against their co-defendants’ assertion of their rights. Thus, because the claims are 

factually connected to the interpleader only by way of the Hodgsons’ affirmative defense, the 

claims are not compulsory. 

b. Supplemental Jurisdiction over the Permissive Counterclaims 

The court next determines whether it has supplemental jurisdiction over the 

counterclaims as permissive. “Nonfederal claims are part of the same ‘case’ as federal claims 

when they ‘derive from a common nucleus of operative fact’ and are such that a plaintiff ‘would 

ordinarily be expected to try them in one judicial proceeding.’” Trs. of Constr. Indus. & Laborers 

Health & Welfare Trust v. Desert Valley Landscape & Maint., Inc., 333 F.3d 923, 925 (9th Cir. 

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2003) (quoting Finley v. United States, 490 U.S. 545, 549 (1989)) (internal quotations omitted). 

While the Ninth Circuit has considered issues arising from affirmative defenses in 

finding supplemental jurisdiction, id. at 925 (finding supplemental jurisdiction, in part, because a 

defendant “planned to argue as part of its equitable estoppel defense that [defendant] did not in 

fact owe any ERISA contributions. Thus, the issue of [defendant’s] ERISA obligations would 

have been part of the trial . . . .”), it has yet to decide the precise issue before this court. The 

Second and Seventh Circuits have found that, since the enactment of the supplemental 

jurisdiction statute, “a federal court may exercise supplemental jurisdiction over certain 

permissive counterclaims.” See Jones v. Ford Motor Credit Co., 358 F.3d 205, 213 (2d Cir. 

2004); Channell v. Citicorp Nat. Servs., Inc., 89 F.3d 379, 385 (7th Cir. 1996). One court in this 

district has made the same determination, even as it declines to exercise that jurisdiction. 

Sparrow, 385 F. Supp. 2d at 1067 (§ 1367 “case or controversy” test is “broader than the test for 

compulsory counterclaims”); see also Campos v. W. Dental Servs., Inc., 404 F. Supp. 2d 1164, 

1170 (N.D. Cal. 2005).4

Here, claims one through six undoubtedly arise from the same controversy, the 

foreclosure sale and debt on the Kings Beach property, which will be at issue in the Hodgsons’ 

equitable estoppel defense. Thus, this court finds supplemental jurisdiction over the 

counterclaims for purposes of these motions. 

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4

 As in Sparrow, the court in Campos was concerned with (1) the chilling effect on plaintiff 

debtors from bringing suit under the California Fair Debt Collection Practices Act (FDCPA) by 

allowing a debt collector to counterclaim for breach of their contract, and (2) prominence of the 

counterclaim. The court in Campos noted the underlying policy of the FDCPA is to “give those 

harmed by an alleged violative act a remedy against a debt collector regardless of whether the 

underlying debt is valid.” 404 F. Supp. 2d at 1170. Thus, “strong public policy reasons exist for 

declining to exercise jurisdiction” over the defendant’s underlying debt, even if the debt is valid. 

Id. The same type of policy concern is not evident here. Rather, the function of interpleader is to 

protect the interpleader from liability for the funds that are being disputed. Lee v. W. Coast Life 

Ins. Co., 688 F.3d at 1009. That protection does not extend to personal liability beyond the 

trustee’s duty to determine to whom the surplus should be delivered. Id. Here, the funds in 

dispute are the surplus proceeds. There is no underlying policy protecting the trustee from being 

sued for personal liability. 

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While the claims could substantially predominate over the interpleader action, 

given their complexity relative to the priority order issue in the interpleader, the court does not 

withhold jurisdiction at this time because the defense will likely present the issue of whether the 

foreclosure sale should have occurred in the first place. Acri v. Varian Assocs., Inc., 114 F.3d 

999, 1000, as supplemented, 121 F.3d 714 (9th Cir. 1997) (“[T]he district court may exercise 

supplemental jurisdiction over state law claims without sua sponte addressing whether it should 

be declined under § 1367(c).”). 

Moreover, the court has federal question jurisdiction over the third cause of action 

under the federal Equal Credit and Opportunity Act. New SD, Inc. v. Rockwell Int'l Corp., 

79 F.3d 953, 955 (9th Cir. 1996) (“When federal law applies, . . . it follows that the question 

arises under federal law, and federal question jurisdiction exists.”). It thus cannot decline to 

exercise jurisdiction over this claim, as § 1367(c) applies only to claims arising under 

supplemental jurisdiction. 28 U.S.C. § 1367(a). 

In the interest of judicial economy, the court asserts its discretion to exercise 

jurisdiction over claims one through six at this time. See United Mine Workers of Am. v. Gibbs, 

383 U.S. 715, 726 (1966). No jurisdictional hurdle precludes the Hodgsons’ amending their 

complaint. Id. at 727 (“. . . [T]he issue whether pendent jurisdiction has been properly assumed is 

one which remains open throughout the litigation.”). 

c. Negligence 

The seventh state law cause of action for negligence is asserted against only Bank 

of the West. Thus, it is not a counterclaim and is not subject to the Rule 13 framework. FED. R.

CIV. P. 13(a). Leave to amend can be denied if amendment would be futile. Bonin, 59 F.3d at 

845. This court must consider its supplemental jurisdiction over the claim and joinder of Bank of 

the West. Union Pac. R.R. Co., 236 F. Supp. 2d at 1137. 

 i. Supplemental Jurisdiction 

Because negligence is a state law claim, the court must be able to acquire 

supplemental jurisdiction over it under 28 U.S.C. § 1367 for jurisdiction to adhere. 

///// 

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The claim is part of the same case or controversy as the original claim in 

interpleader. The necessary factual relationship exists in that the Hodgsons allege that Bank of 

the West “provid[ed] [c]ounterdefendants . . . with [the Hodgsons’] private information it held.” 

(Mot. to Amend, Ex. 1 ¶ 161.) They allege that “as a direct and proximate cause of Bank of the 

West’s disclosure of [their] private information, [the Hodgsons] have been damaged.” (Id. ¶ 11.) 

Thus, the facts alleged involve the counterdefendants’ receipt of confidential 

information allegedly used in the conspiratorial plan to deprive the Hodgsons’ of their property. 

It follows that, insofar as the Hodgsons’ equitable estoppel defense is at issue in the interpleader, 

the facts arise out of the same controversy. See Desert Valley, 333 F.3d at 925. 

 ii. Permissive Joinder 

The court finds that Bank of the West can be joined permissively. FED. R. CIV. P. 

20(a). “Rule 20 is designed to promote judicial economy, and reduce inconvenience, delay, and 

added expense.” Coughlin v. Rogers, 130 F.3d 1348, 1351 (9th Cir. 1997). Joinder of a party 

under Rule 20 is proper if: (1) the right to relief arises out of “the same transaction, occurrence, or 

series of transactions or occurrences”; and (2) any question of law or fact common to all parties 

joined will “arise in the action.” FED. R. CIV. P. 20. Courts construe these requirements liberally 

to promote trial convenience and to expedite determination of disputes. See United Mine Workers 

of Am., 383 U.S. at 724 (“Under the Rules, the impulse is toward entertaining the broadest 

possible scope of action consistent with fairness to the parties; joinder of claims, parties and 

remedies is strongly encouraged.”). 

In this context, the same transaction or occurrence requirement “refers to similarity 

in the factual background of a claim.” Coughlin, 130 F.3d at 1350. Claims that “arise out of a 

systematic pattern of events” and “have [a] very definite logical relationship” arise from the same 

transaction or occurrence. Bautista v. Los Angeles Cnty., 216 F.3d 837, 842–43 (9th Cir. 2000) 

(internal quotations omitted). 

The second requirement is that there be a single question of law or fact common to 

all the parties joined. Desert Empire Bank v. Ins. Co. of N. Am., 623 F.2d 1371, 1375 (9th Cir. 

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1980).5 “The common question need not predominate; [that is] a requirement for class actions, 

not for permissive joinder.” Lee v. Cook Cnty., Ill., 635 F.3d 969, 971 (7th Cir. 2011); Lennar 

Mare Island, LLC v. Steadfast Ins. Co., 2:12-CV-02182-KJM, 2013 WL 6623855 (E.D. Cal. Dec. 

16, 2013). 

Here, the negligence claim arises out of the events leading up to the November 

2012 foreclosure of the property in Kings Beach, California. The claim likely involves questions 

of fact “common to all defendants.” FED. R. CIV. P. 20 (a)(2)(B). The question is whether the 

right to relief stems from the same transaction or occurrence as defendants’ claims against 

plaintiff. See Travelers Ins. Co. v. Intraco, Inc., 163 F.R.D. 554, 556 (S.D. Iowa 1995). 

The Hodgsons allege that Bank of the West “provid[ed] [the other defendants] . . . 

with [c]ounterclaimants [sic] private information . . . .” (Mot. to Amend, Ex. 1 ¶ 161.) This 

assertion will be a question in resolving the elder abuse claim, for instance, in which the 

Hodgsons allege that the “[c]ounterdefendants did wrongfully obtain private information from . . . 

Bank of the West . . . regarding [c]ounterclaimants’ protected information . . . .” (Id. ¶ 99.) See

Desert Empire Bank, 623 F.2d at 1375 (permissive joinder was proper where common questions 

of fact included whether “agent Schulte in fact [made] the alleged representations of January 22, 

1976, and if so, [whether] Schulte [was] acting within the scope of his authority as an agent of 

INA at the time that such representations were made”). 

Amendment to allow the seventh claim would not be futile. Thus, the court 

considers Fidelity’s unfair prejudice and undue delay arguments. 

2. Unfair Prejudice and Undue Delay 

Although leave of court should be given freely, a court may deny a motion to 

amend if the motion is made in bad faith, there would be prejudice to the opposing party, the 

amendment would be futile or would delay the action, or if the party acted in a dilatory fashion in 

seeking to amend. Foman v. Davis, 371 U.S. 178, 182 (1962); Bonin, 59 F.3d at 845. However, 

 5 Desert Empire Bank has been superseded by 28 U.S.C. § 1447(e) in ways not applicable here. Khoshnood 

v. Bank of Am., CV 11-04551 AHM FFMX, 2012 WL 751919, at *1 n.4 (C.D. Cal. Mar. 6, 2012); see also IBC 

Aviation Servs., Inc. v. Compania Mexicana de Aviacion, S.A. de C.V., 125 F. Supp. 2d 1008, 1011 (N.D. Cal. 2000). 

The test from Desert Empire Bank is still applicable where, as here, a party to be joined will not destroy diversity. 

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“[u]ndue delay by itself[ ] [...] is insufficient to justify denying a motion to amend.” Bowles, 198 

F.3d at 758. Without a further showing that the amendment causes undue prejudice to the 

defendant, is sought in bad faith, or is futile, the court may grant leave to amend. Id. at 757. 

“The party opposing amendment bears the burden of showing prejudice.” DCD Programs, Ltd., 

833 F.2d at 187. 

Citing Kaplan v. Rose, 49 F.3d 1363, 1370 (9th Cir. 1994), plaintiff avers that 

because defendants knew about the claim when drafting the original pleading, leave to amend 

should be denied. (Opp’n at 5:9-12.) In that case, however, the Ninth Circuit affirmed a district 

court’s denial of a motion for leave in part because the parties “had already engaged in 

voluminous discovery,” were two months away from trial, and discovery was closed. Kaplan, 49 

F.3d at 1370 (internal quotations omitted). 

Here, the court has yet to issue a scheduling order, so discovery has not even 

begun. There is a pending state court action based on the same or similar facts. (Notice of 

Removal, Ex. A at 36-48.) While it is unclear from the record whether the plaintiff is a party in 

the state court action, plaintiff is aware of it, as the state claim was the impetus for its own 

interpleader claim. Rimkus Consulting Group, Inc. v. Cammarata, 257 F.R.D. 127, 135-136 

(S.D. Tex. 2009) (where defendant’s motion to leave to assert a compulsory counterclaim was 

granted because, inter alia, the parties were “aware of and [had] been defending against an 

identical counterclaim in the case.”). Once the case reaches the stage for scheduling, the court 

can put in place discovery procedures to avoid duplication. 

Plaintiff’s averment that defending itself in both federal and state court would 

cause unfair prejudice is unsupported by any meaningful detail. (Opp’n at 5-6.) Moreover, Ninth 

Circuit precedent permits counterclaimant to assert a claim that is subject to pending litigation in 

state court. See Union Paving Co., 276 F.2d at 471. Amendment will not prejudice plaintiff. 

The court GRANTS defendants’ motion for leave to amend in its entirety. 

B. Permissive Joinder of Parties to the Counterclaims 

Under Rule 13(h), parties may be joined to counterclaims based on Rules 19 or 20. 

While the Hodgsons argue that the parties to be joined are necessary parties (Mot. to Join 2:6-8), 

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the court finds that all the parties can be joined permissively. FED. R. CIV. P. 20(a). Joinder of a 

party under Rule 20 is proper if: (1) the right to relief arises out of “the same transaction, 

occurrence, or series of transactions or occurrences”; and (2) any question of law or fact common 

to all parties joined will “arise in the action.” FED. R. CIV. P. 20. Courts construe these 

requirements liberally to promote trial convenience and to expedite determination of disputes. 

See United Mine Workers of Am., 383 U.S. at 724. 

Here, each claim arises out of the events leading up to the November 2012 

foreclosure of the Kings Beach property. The claims against each putative party are not “discrete, 

and [do not involve] different legal issues, standards, and procedure.” Coughlin, 130 F.3d 

at1351. The Hodgsons generally allege that all parties “collaborated to convert colorable title to 

EBI[ ] . . . [and that they] used a system of filing false instruments within the public domain in a 

scheme to dispossess [the Hodgsons] of their [p]roperty.” (Mot. to Amend, Ex. 1 at 2:23-24.) 

The Hodgsons have alleged a conspiratorial chain of events preceding the foreclosure, indicating 

that the parties’ involvement in the action is intertwined. (Id. ¶¶ 1-61.) 

The Hodgsons allege that “[c]ounterdefendant Ferrari Investments has been 

actively attempting to purchase [c]ounterclaimants' [p]roperty since at least the year 2000.” (Id. 

at 2:23-24.) They allege the same about David J. Ferrari, the “managing member of Ferrari 

Investments.” (Id. at 2:25-28.) The Hodgsons also allege that EBI was formed “for the sole 

purpose of purchasing [c]ounterclaimants' note, deed of trust and other existing loan documents 

pertaining to the [c]ounterclaimants' [p]roperty.” (Id. at 3:13-15.) They seek to join John C. 

Rogers as “the managing member of EBI.” (Id. at 3:8.) 

In the Cancellation of Instruments claim in particular, they allege that all four 

parties to be joined “knew of the falsity of the [Notice of Default] when it was executed and 

elected to file it at the peril of [the Hodgsons’] contract rights.” (Id. at 17:11-13.) Thus, the four 

parties to be joined to the counterclaims are involved in the conspiratorial allegations at issue in 

the counterclaims against Fidelity, who was allegedly acting as their agent. (Id. at 5:24-25.) 

Common questions as to each defendant will necessarily arise. For instance, 

whether there was a genuine monetary default prior to the issuance of the Notice of Default will 

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be at issue as to each defendant in the elder abuse claim. (Id. ¶ 99.) Because “[t]he common 

question need not predominate,” this is sufficient for permissive joinder. Lee v. Cook Cnty., 635 

F.3d at 971. The court finds that each of the parties to be joined to the counterclaim may be 

joined under Rule 20. 

V. CONCLUSION 

For the foregoing reasons, defendants’ motions are GRANTED. 

DATED: May 9, 2014. 

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