Opinion ID: 221968
Heading Depth: 2
Heading Rank: 3

Heading: Diversity Jurisdiction and Improper Joinder

Text: The district courts have original jurisdiction of civil actions where the matter in controversy exceeds the sum or value of $75,000, exclusive of costs and interest, and is between citizens of different states. 28 U.S.C. § 1332. It is undisputed that the matter in controversy exceeds $75,000; thus whether diversity jurisdiction exists over the state law claims hinges on whether Countrywide Home Loans of Texas's presence in the action destroyed diversity. In their notice of removal and their response to the Cuevases' motion to remand, the defendants argued that there was no reasonable basis for the Cuevases to recover from Countrywide Home Loans of Texas because (1) the entity never serviced the Cuevases' Home Loans, and (2) Countrywide Home Loans of Texas was an inactive corporation at all times relevant to the litigation. [2] The district court held that the defendants failed to carry their burden of proving improper joinder because the complaint makes no distinction between the origination and later servicing of their home loan and because the Secretary of State's records showed that Countrywide Home Loans of Texas was in existence and in use when the Cuevases filed suit. We disagree with the district court. The defendants have carried the burden of proving improper joinder; the district court has diversity jurisdiction over the state law claims.
The improper joinder doctrine constitutes a narrow exception to the rule of complete diversity. McDonal v. Abbott Labs., 408 F.3d 177, 183 (5th Cir.2005). [T]he purpose underlying the improper joinder inquiry is to determine whether or not the in-state defendant was properly joined. Id. Thus, the focus of the inquiry must be on the joinder, not on the merits of the plaintiff's case. Id. The burden is on the removing party; and the burden of demonstrating improper joinder is a heavy one. See id. (citing Griggs v. State Farm Lloyds, 181 F.3d 694, 699 (5th Cir.1999)). To establish improper joinder, the removing party must demonstrate either: (1) actual fraud in the pleading of jurisdictional facts, or (2) inability of the plaintiff to establish a cause of action against the non-diverse party in state court. Smallwood v. Ill. Cent. R.R. Co., 385 F.3d 568, 573 (5th Cir.2004) (en banc) (citing Travis v. Irby, 326 F.3d 644, 646-47 (5th Cir.2003)). Only the second way is before us. Under the second way, the test is whether the defendant has demonstrated that there is no possibility of recovery by the plaintiff against an in-state defendant, which stated differently means that there is no reasonable basis for the district court to predict that the plaintiff might be able to recover against an in-state defendant. Id. If there is no reasonable basis of recovery, then the court can conclude that the plaintiff's decision to join the in-state defendant was indeed improper, unless that showing compels the dismissal of all defendants. McDonal, 408 F.3d at 183; Smallwood, 385 F.3d at 575. There is no improper joinder if the defendants' showing compels the same result for the resident and nonresident defendants, because this simply means that the plaintiff's case is ill founded as to all of the defendants. McDonal, 408 F.3d at 183 (citation and internal quotation marks omitted); Smallwood, 385 F.3d at 574 (citation and internal quotation marks omitted). Such a defense is more properly an attack on the merits of the claim, rather than an inquiry into the propriety of the joinder of the in-state defendant. Id. Finally, any contested issues of facts and any ambiguities of state law must be resolved in the Cuevases' favor. Travis, 326 F.3d at 649.
In deciding what procedure was necessary to predict whether the Cuevases have a reasonable basis of recovery under the state law, the district court appears to have relied primarily on the complaint, but also pierced the complaint to determine whether (1) Countrywide Home Loans of Texas was in existence and in use during the relevant period of litigation, [3] and (2) there was discrete, undisputed evidence that Countrywide Home Loans of Texas did not service or originate the loans. The district court's process clearly fell within the bounds of the discretion we outlined in Smallwood, 385 F.3d at 573-74 (5th Cir. 2004). Accordingly, we review using the same process. On appeal, the defendants no longer dispute that Countrywide Home Loans of Texas was in existence and in use during all relevant times of the litigation. The defendants continue to argue that Countrywide Home Loans of Texas did not originate or service the Cuevases loans, and therefore that the Cuevases cannot recover against Countrywide Home Loans of Texas. After reviewing the record, we agree that there is no reasonable basis to predict that the Cuevases might be able to recover against the in-state defendant. The defendants provided undisputed evidence establishing that Countrywide Home Loans of Texas did not originate or service the loans. The deeds of trust list First Magnus Corporation as the lender that originated the loan. To support its contention that Countrywide Home Loans of Texas does not service loans and has never serviced loans, the defendants offered the affidavit of Devra Lindgren, Vice-President and Assistant Corporate Secretary of Bank of America, N.A. [4] Lindgren testified from her personal knowledge of the structure of Bank of America, its subsidiaries, and its affiliatesincluding Countrywide entities such as Countrywide Home Loans of Texasand her review of relevant business records. Lindgren testified that the Cuevases' loan was serviced by Countrywide Home Loans Servicing LPwhich later changed its name to BAC Home Loans Servicing, LPat all times relevant to the complaint. Lindgren further testified that Countrywide Home Loans of Texas was created to conduct the mortgage origination business of Full Spectrum Lending, Inc. Finally, she averred that Countrywide Home Loans of Texas did not originate the Cuevases loan, nor did it ever service loans for the Cuevases or anyone else. In their reply to the defendants' response in opposition to the motion for remand, the Cuevases failed to produce any evidence disputing the defendants evidence or supporting their own allegations. Further, the evidence in the record lends support to Lindgren's statement that Countrywide Home Loans Servicing LP serviced the Cuevases' home loan. In their amended complaint, the Cuevases alleged that Countrywide sent the Cuevas family a letter on January 21, 2009, informing the Cuevases of their default and the amount they had to pay by February 20, 2009. The very first line of the January 21 letter, which was typed on Countrywide Home Loans letterhead, states that Countrywide Home Loans Servicing LP (now known as BAC Home Loans Servicing, LP) services the home loan for the Cuevas property in Porter, Texas. In light of the defendants' undisputed evidence that Countrywide Home Loans of Texas did not originate or service the Cuevases' home loan, we find that the defendants have demonstrated that the Cuevases have no possibility of recovery against the in-state defendant. The defendants have carried their burden of proving the improper joinder of Countrywide Home Loans of Texas. The remaining parties are diverse; the district court had diversity jurisdiction over the state law claims at the time of remand. When the district court has original subject matter jurisdiction over state law claims, the exercise of that jurisdiction is mandatory. The parties cannot waive or agree to destroy that original jurisdiction. See Adair, 587 F.3d at 241. The district court erred in remanding the state law claims.