Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_08-cv-01600/USCOURTS-caed-2_08-cv-01600-2/pdf.json

Parties Involved:
Traci Johnson
Plaintiff
Morrison Homes, Inc.
Defendant
Taylor Morrison, Inc.
Defendant

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 Because oral argument will not be of material assistance, 1

the Court orders this matter submitted on the briefs. E.D. Cal.

Local Rule 230(g).

1

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF CALIFORNIA

TRACI JOHNSON, No. 2:08-cv-01600-MCE-KJM

Plaintiff,

vs. ORDER

MORRISON HOMES, INC., et al.,

Defendants.

----oo0oo----

In June 2005, Traci Johnson (“Plaintiff”), with the

assistance of a federally related mortgage loan, entered into a

contract with Morrison Homes, Inc. and Taylor Morrison, Inc.

(“Defendants”) for the purchase of a home in Elk Grove,

California. On March 12, 2008, Plaintiff commenced this class 1

action suit in the Superior Court of Sacramento County alleging

that Defendants violated, inter alia, California Financial Code §

50505. 

Case 2:08-cv-01600-MCE -KJM Document 26 Filed 07/23/10 Page 1 of 7
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2

In July 2008, Defendants removed this action from Sacramento

County Superior Court to this Court under 28 U.S.C. § 1441(a) on

grounds that the state law claims are based entirely upon two

federal authorities: (1) the Real Estate Settlement Procedures

Act, 12 U.S.C. §§ 2607, 2608 (“RESPA”); and (2) Regulation X,

24 C.F.R. § 3500. (Def.’s Opp., 2) Plaintiff has now filed a

Motion to Remand this case to the Superior Court of Sacramento

County. For the reasons stated below, Plaintiff’s Motion to

Remand is denied.

BACKGROUND

In June 2005, Plaintiff purchased a home from Defendants in

Elk Grove in Sacramento County, California with the assistance of

a federally related mortgage loan. She asserts that the sales

contract required her to purchase title insurance from First

American Title Insurance Company (“First American”). (Pl.’s Mot.

Remand, 2) Plaintiff alleges that this provision was included in

the sales contract due to a “business relationship” between First

American and Defendants which involved a “kickback” scheme, in

direct contradiction with RESPA and California Financial Code §

50505. (Pl.’s Compl. ¶¶ 15, 16, 17) This illicit conduct,

Plaintiff contends, is manifested by her paying $514 for her

title insurance policy-–well in excess of the $125 that First

American charges per policy as is filed with the California

Department of Insurance. (Pl.’s Mot. Remand, 3) 

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3

Plaintiff’s Complaint alleges that the Defendants’ conduct

violated numerous state laws that entitle her to relief:

(1) Unfair Competition Law, Business and Prof. Code §§ 17200 and

1750; (2) Consumers Legal Remedy Act, Civil Code § 1750, et seq.;

(3) California Financial Code § 50505; (4) Breach of Contract;

(5) Negligence; (6) Unjust Enrichment; and (7) Declaratory

Relief. (Pl.’s Comp., 1) 

On July 10, 2008, Defendants removed this action from the

Sacramento Superior Court pursuant to federal question

jurisdiction. 28. U.S.C. § 1441(a). Defendants contend that the

Plaintiff’s claims are based solely on alleged violations of

RESPA and Regulation X, and that the validity of those claims

“turn[] solely on the interpretation and application of RESPA and

Regulation X.” (Def. Opp., 2) Plaintiff now moves to remand

alleging that this Court does not have jurisdiction to hear

Plaintiff’s claims. 

STANDARD

A defendant may remove any civil action from state court to

federal district court if the district court has original

jurisdiction over the matter. 28 U.S.C. § 1441(a). Generally,

district courts have original jurisdiction over civil actions in

two instances: (1) where there is complete diversity between the

parties, or (2) where a federal question is presented in an

action arising under the Constitution, federal law, or treaty. 

28 U.S.C. §§ 1331 and 1332. 

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4

The removing party bears the burden of establishing federal

jurisdiction. Ethridge v. Harbor House Rest., 861 F.2d 1389,

1393 (9th Cir. 1988). Furthermore, courts construe the removal

statute strictly against removal. Gaus v. Miles, Inc., 980 F.2d

564, 566 (9th Cir. 1992) (citations omitted). If there is any

doubt as to the right of removal in the first instance, remand

must be granted. See Gaus, 980 F.2d at 566. If the court at any

time determines that it lacks jurisdiction over the removed

action, it must remedy the improper grant of removal by remanding

to the state court. 28 U.S.C. § 1447(c); see ARCO Envtl.

Remediation L.L.C. v. Dep’t of Health & Envtl. Quality of Mont.,

213 F.3d 1108, 1114 (9th Cir. 2000) (internal citations omitted).

The district court determines whether removal is proper by

first determining whether a federal question exists on the face

of the plaintiff’s well-pleaded complaint. Caterpillar, Inc. v.

Williams, 482 U.S. 386, 392 (1987). If a complaint alleges only

state law claims and lacks a federal question on its face, then

the federal court must grant the motion to remand. See 28 U.S.C.

§ 1447(c); Caterpillar, 482 U.S. at 392. Nonetheless, there are

rare exceptions when a well–pleaded state law cause of action

will be deemed to arise under federal law and support removal. 

They are “...(1) where federal law completely preempts state law,

(2) where the claim is necessarily federal in character, or

(3) where the right to relief depends on the resolution of a

substantial, disputed federal question.” ARCO, 213 F.3d at 1114. 

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5

ANALYSIS

The gravamen of parties’ dispute over jurisdiction rests on

whether Plaintiff’s Complaint, which purports to allege only

state law claims, necessarily turns on a determination of federal

law. In Franchise Tax Board of Cal. v. Construction Laborers

Vacation Trust for S. Cal., 463 U.S. 1, 13 (1983), the Supreme

Court stated that in situations where the plaintiff’s cause of

action is created by state law, “its case might still ‘arise

under’ the laws of the United States if a well-pleaded complaint

established that its right to relief under state law requires

resolution of a substantial question of federal law in dispute

between the parties.” Additionally, the court in Lippitt v.

Raymond James Financial Services, Inc., 340 F.3d 1033 (9th Cir.

2003) concluded that the artful pleading doctrine prohibits

plaintiffs from defeating removal by omitting necessary federal

questions and that the doctrine “allows courts to delve beyond

the face of the state court complaint and find federal question

jurisdiction by recharacterizing a plaintiff’s state law claim as

a federal claim.” Id. at 1041. A state law claim will raise a

substantial federal question when: (1) a substantial, disputed

question of federal law is a necessary element of ... the wellpleaded state claim, or the claim is an inherently federal claim

articulated in state law terms; or (2) the right to relief

depends on the resolution of a substantial, disputed federal

question. Id. at 1042-1043. 

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6

Plaintiff alleges a claim for California Financial Code

§ 50505 which states that “[a]ny person who violates any

provision of any of the following federal acts or regulations

violates this division: (a) RESPA, as amended (12 U.S.C. § 2601

et. seq.). 

The facts of the instant case require any court overseeing

the litigation to conduct an analysis of the implicated federal

statutes in order to determine whether the Defendants have

violated the state law. As a consequence, federal law is an

indispensable component of the claim as it represents more than

the “mere presence of a federal issue.” Lippitt, 340 F.3d at

1040. In Lippitt, the court cited favorably a Second Circuit

Court of Appeals decision wherein it concluded that a sufficient

federal interest existed because the plaintiff’s claims “required

a finding that the defendant violated the federal securities law

by ‘failing to perform its statutory duty, created under federal

law, to enforce its members’ compliance with those laws.’” Id.

at 1045 (quoting D’Alessio v. New York Stock Exchange, Inc., 258

F.3d 93, 101 (2nd Cir. 2001) (emphasis in original)). California

Financial Code § 50505 explicitly states that, in order to

maintain a state claim, the defendant must necessarily violate

the federal statute. Therefore, like D’Alessio, in order to

investigate the merits of the state cause of action, the court

will be required to determine whether Defendants’ conduct

violated RESPA. Whether or not Defendants violated the federal

statute controls Plaintiff’s right to relief. 

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7

Unavoidably, the state law claim “turns, entirely, upon the

defendant’s compliance with a federal regulation,” RESPA. 

California ex. rel. Lockyer v. Dynegy, Inc., 375 F.3d 831, 841

(9th Cir. 2004).

CONCLUSION

Having established that a substantial federal question

exists, this Court may exercise subject matter jurisdiction over

the litigation. For the reasons set forth above, Plaintiff’s

Motion to Remand (Docket No. 20) to the Superior Court of

Sacramento County is DENIED. 

IT IS SO ORDERED.

Dated: July 23, 2010

_____________________________

MORRISON C. ENGLAND, JR.

UNITED STATES DISTRICT JUDGE

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