1

A loan insured by the Federal Housing Administration, a

component of the Department of Housing and Urban Development.

 INTHE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF TEXAS

DALLAS DIVISION

JOYCE A. LEGGETTE, §

 §

Plaintiff, §

 § Civil Action No. 3:03-CV-2909-D

VS. §

 §

WASHINGTON MUTUAL BANK, FA, §

et al., §

 §

Defendants. §

MEMORANDUM OPINION

 AND ORDER 

In this removed action asserting a state-law claim for

wrongful foreclosure, plaintiff’s motion to remand presents the

question whether exercising federal question jurisdiction would

disturb a congressionally approved balance of federal and state

judicial responsibilities. Concluding that it would, the court

holds that it lacks subject matter jurisdiction and remands the

case to state court. 

I

Plaintiff Joyce A. Leggette (“Leggette”) sues defendants

Washington Mutual Bank, FA (“WMB”) and Mortgage Electronic

Registration Systems, Inc. (collectively, “WMB”), alleging that

they are liable for wrongful foreclosure based on violations of

three federal regulations respecting mortgage servicing

requirements for FHA loans.1 After she filed suit in Texas state

 

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2Leggette uses the term “abstain” in conjunction with the term

“remand” and seeks the same relief: that the court remand the case

to state court based on the absence of federal question and

diversity jurisdiction. She does not, for example, seek abstention

under an alternative, and more typical, understanding of that

concept.

3Because she challenges the court’s subject matter

jurisdiction, it is irrelevant that she filed her challenge to

removal long after the case was removed. This court must assure

itself at every stage of the litigation that it has subject matter

jurisdiction. See, e.g., In re Bass, 171 F.3d 1016, 1021 (5th Cir.

1999) (“Federal courts must be assured of their subject matter

jurisdiction at all times and may question it sua sponte at any

stage of judicial proceedings.”).

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court, WMB removed the case based on this court’s federal question

jurisdiction, and it later moved for summary judgment. Several

months after WMB filed the summary judgment motion, Leggette moved

the court to abstain2

 and remand.3

Leggette purchased a home in Dallas, Texas using the proceeds

of an FHA loan that she obtained from WMB. To secure the loan,

Leggette executed a deed of trust that provides, inter alia, that

(1) WMB “may, except as limited by regulations issued by the

Secretary [of the Department of Housing and Urban Development

(“HUD”)], in the case of payment defaults, require immediate

payment in full . . . [,]” Pet. Ex. A at 4, ¶ 9(a) (emphasis

omitted), and (2) “In many circumstances regulations issued by the

Secretary will limit [WMB’s] rights, in the case of payment

defaults, to require immediate payment in full and foreclose if not

paid[,]” id. at 5, ¶ 9(d) (emphasis omitted). Leggette defaulted

on the mortgage, and WMB notified her that the loan had been

 

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accelerated and that her home would be foreclosed on.

II

Leggette maintains that the court lacks subject matter

jurisdiction because the parties are not completely diverse and her

state-law claim does not arise under federal law. 

A

The removal statute, 28 U.S.C. § 1441, should be strictly

construed in favor of remand, and WMB bears the burden of

demonstrating that federal jurisdiction exists. See Cantwell v.

Deutsche Bank Secs., Inc., 2005 WL 2296049, at *2 (N.D. Tex. Sept.

21, 2005) (Fitzwater, J.) (citing De Aguilar v. Boeing Co., 47 F.3d

1404, 1408 (5th Cir. 1995), and Manguro v. Prudential Prop. & Cas.

Ins. Co., 276 F.3d 720, 723 (5th Cir. 2002)). It is undisputed

that the parties are not completely diverse citizens and that

Leggette does not assert a cause of action created by federal law.

This case is therefore removable only if Leggette’s state-law

wrongful foreclosure action arises under federal law pursuant to 28

U.S.C. § 1331, which provides that “[t]he district courts shall

have original jurisdiction of all civil actions arising under the

Constitution, laws, or treaties of the United States.” 

“Ordinarily, the well-pleaded complaint rule governs federal

question jurisdiction. Under the rule, ‘[r]emoval is not possible

unless the plaintiff’s “well pleaded complaint” raises issues of

federal law sufficient to support federal question jurisdiction.’”

 

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Ervin v. Stagecoach Moving & Storage, Inc., 2004 WL 1253401, at *2

(N.D. Tex. June 8, 2004) (Fitzwater, J.) (alteration in original)

(quoting Rodriguez v. Pacificare of Tex., Inc., 980 F.2d 1014, 1017

(5th Cir. 1993)). Leggette is thus the master of her claim, and

she may avoid federal jurisdiction by exclusive reliance on state

law. Cantwell, 2005 WL 2296049, at *2 (citing Caterpillar Inc. v.

Williams, 482 U.S. 386, 107 S. Ct. 2425, 2429 (1987)). Under the

“artful pleading doctrine,” this court may, however, disregard the

state-law facade of her complaint, thereby bringing to the surface

any federal claims lying beneath, “‘where the vindication of a

right under state law necessarily turn[s] on some construction of

federal law.’” Navarro v. Bell Helicopter Servs., Inc., 2001 WL

454558, at *1 (N.D. Tex. Jan. 25, 2001) (Fitzwater, J.) (quoting

Franchise Tax Bd. v. Constr. Laborers Vacation Trust, 463 U.S. 1,

9 (1983)). 

The Supreme Court’s recent decision in Grable & Sons Metal

Products v. Darue Engineering & Manufacturing, ___ U.S. ___, 125 S.

Ct. 2363 (2005), makes clear that, although jurisdiction under

§ 1331 “is invoked by and large by plaintiffs pleading a cause of

action created by federal law[,] . . . [t]here is, however, another

longstanding, if less frequently encountered, variety of federal

‘arising under’ jurisdiction. . . .” Id. at 2366. In “certain

cases federal question jurisdiction will lie over state-law claims

that implicate significant federal issues. The doctrine captures

 

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the commonsense notion that a federal court ought to be able to

hear claims recognized under state law that nonetheless turn on

substantial questions of federal law, and thus justify resort to

the experience, solicitude, and hope of uniformity that a federal

forum offers on federal issues[.]” Id. at 2367 (citations

omitted). In these cases “federal jurisdiction demands not only a

contested federal issue, but a substantial one, indicating a

serious federal interest in claiming the advantages thought to be

inherent in a federal forum.” Id.

[E]ven when the state action discloses a

contested and substantial federal question,

the exercise of federal jurisdiction is

subject to a possible veto. For the federal

issue will ultimately qualify for a federal

forum only if federal jurisdiction is

consistent with congressional judgment about

the sound division of labor between state and

federal courts governing the application of

§ 1331.

 

Id. Accordingly, for the court to exercise federal question

removal jurisdiction in this case, Leggette’s claim must

“necessarily raise a stated federal issue, actually disputed and

substantial, which a federal forum may entertain without disturbing

any congressionally approved balance of federal and state judicial

responsibilities.” Id. at 2368. 

B

The court considers first whether Leggette’s state-court

petition (“complaint”) necessarily raises a stated federal issue

 

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4

Although WMB bears the burden of demonstrating that removal

is proper in these circumstances, Leggette’s failure to file a

reply brief has left unanswered WMB’s contentions regarding the

implications for this case of the Court’s recent decision in

Grable. See De Aguilar, 47 F.3d at 1408 (observing that party

seeking removal bears burden of showing that federal jurisdiction

exists).

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that is actually disputed and substantial.4 Leggette styles her

claim as one for wrongful foreclosure, referring to it in her

briefing as a breach of contract claim under Texas law. Wrongful

foreclosure actions may be brought by persons who suffer “loss or

material injury because of irregularities in the foreclosure sale.”

See Wieler v. United Sav. Ass’n of Tex., 887 S.W.2d 155, 158 (Tex.

App. 1994, writ denied). Leggette contends, however, that WMB

failed to adhere to the terms of the deed of trust. Because under

Texas law a deed of trust is governed by the same rules of

interpretation that apply to contracts, see Sonny Arnold, Inc. v.

Sentry Savings Ass’n, 633 S.W.2d 811, 815 (Tex. 1982), her action

is properly framed as a breach of contract claim, see In re Keener,

268 B.R. 912, 922 (Bankr. N.D. Tex. 2001) (“[T]he [plaintiff’s]

claim of wrongful foreclosure is misplaced.”). Leggette alleges

that WMB breached the contract on the following three grounds, each

of which asserts a failure to comply with HUD regulations that

implement the National Housing Act (“NHA”), 12 U.S.C. §§ 1701-1750:

before accelerating her loan and noticing the foreclosure, WMB

failed to conduct a face-to-face interview, in violation of 24

C.F.R. § 203.604(b); WMB failed to inform Leggette of other

 

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available assistance, in contravention of 24 C.F.R.

§ 203.604(e)(2); and WMB failed to conduct a loss mitigation

evaluation, in violation of 24 C.F.R. §§ 203.605, 203.501.

Although the court typically does not look beyond what

Leggette has alleged in her complaint in assessing whether her

claim raises substantial and disputed issues of federal law, see

Ervin, 2004 WL 1253401, at *2 (addressing well-pleaded complaint

rule), it must make a commonsense determination whether such issues

are present in the case, see Grable, 125 S. Ct. at 2367-68;

Cantwell, 2005 WL 2296049, at *3. Each ground of Leggette’s

wrongful foreclosure claim necessarily turns on WMB’s obligations

under federal law. The dispute between WMB and Leggette rests

entirely on the correct interpretation of three federal

regulations, e.g., whether 24 C.F.R. § 203.604(b) requires face-toface interviews where a loan procurement, but not a loan servicing,

branch is located within 200 miles of the mortgagor, and not upon

questions of fact, such as whether WMB conducted the interview.

WMB’s rights respecting loan acceleration and foreclosure under the

deed of trust are limited by federal regulations, and if WMB

violated these regulations, it may have improperly exercised its

contractual rights. Federal issues appear, as in Grable, to be the

only questions contested in the case. See Grable, 125 S. Ct. at

2368. Moreover, as Grable noted, the actual dispute about federal

law is “‘especially’” important, and, in these circumstances, WMB

 

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5WMB maintains that, once the federal issues in this case

regarding the lending regulations have been resolved, that is,

they are not “subject to ‘any controversy respecting their

validity, construction or effect,’” federal jurisdiction may not be

proper in similar cases. Grable, 125 S. Ct. at 2369 n.3 (quoting

Shulthis, 225 U.S. at 570). This court notes, however, that in

Merrell Dow Pharmaceuticals Inc. v. Thompson, 478 U.S. 804 (1986),

the Court rejected the contention that “whether a particular claim

arises under federal law depends on the novelty of the federal

issue.” Id. at 817 (emphasis added).

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and Leggette have a genuine and reasonable disagreement over the

“‘validity, construction, or effect’” of the relevant HUD

regulations. Grable, 125 S. Ct. at 2369 n.3 (quoting Shulthis v.

McDougal, 225 U.S. 561, 569-70 (1912)).5 The court therefore

concludes that Leggette’s complaint necessarily raises a stated

federal issue, actually disputed and substantial. Cf. Cantwell,

2005 WL 2296049, at *5 (concluding that defendants failed to carry

burden of demonstrating that plaintiff’s petition necessarily

raised stated issue of federal law that was actually disputed and

substantial). 

C

“[E]ven when the state action discloses a contested and

substantial federal question, the exercise of federal jurisdiction

is subject to a possible veto.” Grable, 125 S. Ct. at 2367. The

court must decide whether WMB has shown that Leggette’s claims are

those that “a federal forum may entertain without disturbing any

congressionally approved balance of federal and state judicial

responsibilities.” Id. at 2368. To do so, the court will examine

 

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the importance of having a federal forum to decide the issue and

the effect of exercising jurisdiction on the balance of the

federal-state division of responsibilities. It will also consider

the existence vel non of a federal private right of action under

the NHA. 

Invoking “foreclosure by private power [is] a traditional

creditor’s remedy under state law.” Roberts v. Cameron-Brown Co.,

556 F.2d 356, 359 (5th Cir. 1977). Regulating the foreclosure of

real property has traditionally been the province of states,

despite federal regulation of some sectors of the lending industry,

and “there are state law remedies available to protect mortgagors

from unconscionable mortgages.” Id. at 361. For example, in

Roberts the plaintiff purchased a home using a loan financed under

a provision of the NHA that encouraged private mortgagees to invest

in low income housing and provided for HUD-financed mortgage

assistance payments. After the plaintiff became delinquent in her

payments, the Federal National Mortgage Association (“FNMA”)——to

whom the original lender had assigned the loan——notified her that

it was exercising its option to accelerate the debt. Id. at 357.

The plaintiff responded by filing a class action, alleging, inter

alia, that, the exercise of the private power of sale violated

Fifth Amendment Due Process Clause because the original lender and

FNMA had violated HUD Handbook 4191.1. Id. at 357-58. In holding

that there was no private right of action to enforce the HUD

 

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Handbook, the Fifth Circuit cited Baker v. Northland Mortgage Co.,

344 F. Supp. 1385 (N.D. Ill. 1972), for its holding “that the [NHA]

and the regulations promulgated thereunder deal only with the

relations between the mortgagee and the government, and give the

mortgagor no claim to a duty owed nor remedy for failure to

follow.” Roberts, 556 F.2d at 360; see also 24 C.F.R. § 203.500

(2005) (“[t]his subpart identifies servicing practices of lending

institutions that HUD considers acceptable for mortgages insured by

HUD”); In re Miller, 124 F.App’x 152, 155 (4th Cir. 2005) (per

curiam) (unpublished opinion) (addressing whether 12 U.S.C.

§ 1715u(a), NHA’s loss mitigation provision, creates private right

or action, and observing that “the statute’s focus is on regulating

mortgagees not protecting mortgagors”). The question whether

foreclosure is properly barred when a mortgagee fails to comply

with federal loan servicing regulations is a matter to be

determined by the terms of the mortgage instructions and applicable

state law. See Roberts, 556 F.2d at 361 n.4 (noting that

foreclosures are governed by mortgage instruments and applicable

state law (citing HUD Mortgage Letter, HM 75-10)); see, e.g., Fed.

Nat’l Mortgage Ass’n v. Moore, 609 F. Supp. 194, 196 (N.D. Ill.

1985) (observing that failure to comply with HUD servicing

regulations can be raised as affirmative defense under Illinois

law); Heritage Bank, N.A. v. Ruh, 465 A.2d 547, 554 (N.J. Super.

Ct. Ch. Div. 1983)(holding that HUD regulations “are discretionary,

 

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6WMB maintains, for example, that Leggette’s “counsel here has

filed more than one” lawsuit in which borrowers are seeking direct

relief based on an alleged violation of HUD regulations. D. Br. at

5. 

- 11 -

not mandatory, and are not a legal prerequisite to foreclosure

which is determined by” New Jersey law). 

Exercising federal jurisdiction over home foreclosure disputes

typically governed by private contract and state law portends a

significant transfer of judicial responsibilities from state to

federal courts. HUD statistics show that, for the period October

2004 through July 2005, a total of 261,700 FHA-insured single

family home loans were in default more than 90 days. MONTHLY REPORT

TO THE FHA COMMISSIONER, FHA PORTFOLIO ANALYSIS, DATA AS OF JULY 2005, at 12,

http://www.hud.gov/offices/hsg/comp/rpts/com/05jul.pdf. During a

comparable period in 2004, almost 297,000 loans were in default.

MONTHLY REPORT TO THE FHA COMMISSIONER, FHA PORTFOLIO ANALYSIS, DATA AS OF JULY

2004, at 12,

http://www.hud.gov/offices/hsg/comp/rpts/com/04jul.pdf.

Conceivably, many borrowers with FHA-insured loans who seek to

avoid foreclosure or to recover for wrongful foreclosure or

similar relief could rely on violations of HUD regulations to

assert state-law actions in federal court based on federal question

jurisdiction, or to bring such claims in state court, triggering a

right of removal on the same basis.6

 By contrast, in Grable it was

clear that the balance between state and federal judicial

 

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7In a pre-Grable decision, Judge Godbey remanded a removed

action in which the plaintiff alleged that the defendant mortgagee

had wrongfully foreclosed, in violation of HUD regulations

incorporated into the deed of trust, and the removing defendant

alleged federal question jurisdiction on the basis of the

incorporated regulations. See Myers v. Countrywide Home Loans,

Inc., 368 F. Supp. 2d 587, 588 (N.D. Tex. 2005). Judge Godbey held

that there was no federal question subject matter jurisdiction

because only a state right was at issue. Id. at 589. WMB contends

that Myers is wrongly decided and is in any event called into

question by the Supreme Court’s subsequent decision in Grable.

Regardless whether the reasoning of Myers survives Grable, it

illustrates that lawsuits like the present one could become common

fare in federal court——filed directly or via removal——if the courts

uphold federal question jurisdiction.

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responsibilities would not be disturbed by exercising federal

jurisdiction, in part because quiet title actions rarely raise

contested issues of federal law. Grable, 125 S. Ct. at 2368 (“it

will be the rare state title case that raises a contested matter of

federal law”) & 2371 (“[I]t is the rare state quiet title action

that involves contested issues of federal law. . . .”). Litigating

state-law foreclosure lawsuits such as Leggette’s in a federal

forum thus “threaten[s] to affect . . . the normal currents of

litigation,” in which foreclosure proceedings are generally

litigated in state courts. Id. at 2371.7

Grable also notes that, although the absence of a federal

private right of action is not dispositive of “the ‘sensitive

judgments about congressional intent’ that § 1331 requires,” id. at

2370 (discussing and quoting Merrell Dow Pharmaceuticals Inc. v.

Thompson, 478 U.S. 804 (1986)), it is “relevant to” making such

judgments, id. at 2372. In Merrell Dow the Court treated “the

 

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combination of no federal cause of action and no preemption of

state remedies . . . as an important clue to Congress’s conception

of the scope of jurisdiction to be exercised under § 1331.”

Grable, 125 S.Ct. at 2370. It viewed the absence of a cause of

action as significant under the circumstances, because “exercising

federal jurisdiction over a state misbranding action would have

attracted a horde of original filings and removal cases raising

other state claims with embedded federal issues.” Id. It reasoned

that, “if the federal labeling standard without a federal cause of

action could get a state claim into federal court, so could any

other federal standard without a federal cause of action. And that

would have meant a tremendous number of cases.” Id. The Court

explained that

[a] general rule of exercising federal

jurisdiction over state claims resting on

federal mislabeling and other statutory

violations would thus have heralded a

potentially enormous shift of traditionally

state cases into federal courts. Expressing

concern over the increased volume of federal

litigation, and noting the importance of

adhering to legislative intent, Merrell Dow

thought it improbable that the Congress,

having made no provision for a federal cause

of action, would have meant to welcome any

state-law tort case implicating federal law

solely because the violation of the federal

statute is said to create a rebuttable

presumption of negligence under state law.

Id. at 2370-71 (citations, internal brackets and quotation marks,

and ellipsis omitted).

This reasoning applies with similar force to the present case.

 

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8The absence on Congressional intent to transform the federal

courts into tribunals for adjudicating state-law foreclosure

litigation involving FHA loans stands in stark contrast, for

example, with the intent Congress manifested in the Employee

Retirement Income Security Act of 1974 (“ERISA”), 29 U.S.C. §§

1001-1461. Although ERISA has shifted to federal court many types

of claims that would otherwise have been litigated in state courts,

the federal courts have repeatedly recognized that this was

Congress’ clear intent when it enacted ERISA.

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Several circuits have refused to imply a private right of action

under the NHA and its implementing regulations. See Moses v. Banco

Mortgage Co., 778 F.2d 267, 272-73 n.2 (5th Cir. 1985) (citing

cases, although declining to decide this issue). The Fifth Circuit

has indicated agreement with these courts. See Roberts, 556 F.2d

at 361-62 (holding that no private cause of action existed under

HUD Handbook). It is improbable that Congress, having opted not to

create a private right of action for violations of the NHA or

regulations promulgated thereunder, would have intended to shift

from state to federal courts potentially massive numbers of

foreclosure-related lawsuits.8

Strictly construing the removal statute in favor of remand,

the court concludes that WMB has failed to meet its burden of

establishing that Leggette presents a claim that “a federal forum

may entertain without disturbing any congressionally approved

balance of federal and state judicial responsibilities.” Grable,

125 S. Ct. at 2368; see also Wisconsin v. Abbott Labs., 2005 WL

2407669, at *28 (W.D. Wis. Sept. 29, 2005) (holding removal

improper where plaintiff’s claims presented substantial and

 

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9The court leaves to the state court on remand the

determination whether WMB is entitled to relief on its motion for

summary judgment.

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disputed question of federal law but disturbed balance of state and

federal judicial responsibilities).

III

In her motion, Leggette requests that she be awarded her costs

and attorney’s fees incurred as a result of removal. Under 28

U.S.C. § 1447(c), “[t]he decision to award fees is a matter of

discretion.” Fathergill v. Rouleau, 2003 WL 21467570, at *2 (N.D.

Tex. June 23, 2003) (Fitzwater, J.). The court denies her request.

Leggette filed this case in state court on October 31, 2003. WMB

removed it to this court on December 2, 2003, and it moved for

summary judgment on January 14, 2005. It was not until May 23,

2005 that Leggette moved to remand the case to state court.

Although, as the court notes supra at note 3, her failure to move

to remand is not fatal to her motion, the court can take her delay

into account in deciding whether she should recover her fees and

costs under § 1447(c). Under the circumstance of this case, it

would be unjust to impose fees and costs on WMB given Leggette’s

dilatory conduct, and the request is denied.

* * *

For the reasons set out, Leggette’s motion to abstain and

remand is granted.9 The court concludes that it lacks subject

matter jurisdiction and, pursuant to § 1447(c), remands this case

 

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to the 101st Judicial District Court of Dallas County, Texas. The

clerk of court shall effect the remand according to the usual

procedure.

SO ORDERED.

October 19, 2005.

_________________________________

SIDNEY A. FITZWATER

UNITED STATES DISTRICT JUDGE

 

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