Court Opinion

ID: 2996943
Source: CourtListenerOpinion
Date Created: 2015-09-24 19:32:35.910438+00
Date Added: 2024-06-11T18:01:31.060065
License: Public Domain

In the
 United States Court of Appeals
             For the Seventh Circuit
                       ____________

Nos. 03-1970 & 03-2352
SHIRLEY BOYD,
                                         Plaintiff-Appellant,
                                             Cross-Appellee,
                             v.

PHOENIX FUNDING CORPORATION, NORTH AMERICAN
MORTGAGE COMPANY, and LINDA ORR,
                                      Defendants-Appellees,
                             v.

RESIDENTIAL FUNDING CORPORATION and
BANK ONE, N.A.,
                                      Defendants-Appellees,
                                          Cross-Appellants.
                       ____________
         Appeals from the United States District Court
               for the Southern District of Illinois.
       No. 01-cv-0749-MJR—Michael J. Reagan, Judge.
                       ____________
   ARGUED OCTOBER 30, 2003—DECIDED APRIL 28, 2004
                   ____________

 Before RIPPLE, MANION, and DIANE P. WOOD, Circuit
Judges.
2                                   Nos. 03-1970 & 03-2352

   DIANE P. WOOD, Circuit Judge. In a misguided attempt
to minimize her income tax liability, Shirley Boyd decided
to mortgage two rental properties she owned in Alton,
Illinois. After spending the proceeds on various personal
expenses, Boyd defaulted on her payments and decided that
she had been the victim of a predatory lending scheme. She
filed suit in Illinois state court alleging federal truth-in-
lending violations, as well as state law claims, against her
mortgage brokers, the original lender, and an entity that
she believed had subsequently been assigned the loans.
  Despite the presence of federal claims, none of the de-
fendants removed the case to federal court within thirty
days of service, as required by the federal removal statute.
Approximately ten months later, in the midst of litigation,
Boyd’s loans were assigned to yet another entity, which
immediately removed the case to federal court once it was
named as a defendant. The case remained in federal court
for the next year and a half. After the district court dismis-
sed all of her federal claims and remanded the remaining
state law claims, Boyd filed this appeal. For the reasons
discussed below, we reverse and remand to the district
court for development of the record regarding the propriety
of removal.

                             I
  The story of this case centers around rental properties
that Boyd owned, located at 926-928 Washington Avenue
and 2102 Rockwell in Alton, Illinois. After deciding that she
wanted to sell the properties, Boyd was advised by Linda
Orr, a mortgage broker, to take out loans using the property
as collateral. Boyd mistakenly believed that mortgaging the
properties would reduce her tax liability in that when she
sold the two properties, presumably for the exact amount
she had borrowed, she could pay off the loans with the
proceeds of the sale. Boyd thought that this meant that she
Nos. 03-1970 & 03-2352                                      3

would realize no income on the transaction (because the
amount of the loans would equal what she obtained in the
sale) and thus that she would not be obligated to pay any
capital gains taxes. The tax laws, of course, do not work this
way, but even independently of the tax laws, things did not
work out as she had hoped. She experienced difficulties
selling the properties and eventually defaulted on her loans.
Deciding that she had been taken, Boyd decided to sue.
  On December 12, 2000, Boyd filed a six-count com-
plaint in the Circuit Court of Madison County, Illinois,
naming four defendants: Orr, the mortgage broker who had
advised her of the supposed tax scheme; Phoenix Funding
Corporation (“Phoenix”), a mortgage brokerage firm Orr had
recommended that had assisted in processing Boyd’s loan
applications; North American Mortgage Company (“North
American”), the original lender, which had extended her
two loans—one in the amount of $44,000 for the Rockwell
property, and a second in the amount of $48,400 for the
Washington property; and Homecomings Financial Net-
works, Inc. (“Homecomings”), which Boyd alleged had taken
an assignment of “the two loans which are the subject of
this litigation.” Complaint at ¶ 4. According to Boyd’s
original complaint, “[a]fter the closing of the loans with
North American Mortgage Company, North American
Mortgage Company assigned the loans to Homecomings
Financial Network.” Id. at ¶ 15. Boyd alleged that Phoenix,
North American, and Homecomings had violated the Truth
in Lending Act (“TILA”), 15 U.S.C. §§ 1601 et seq., by failing
to make the required disclosures at the time of the credit
transactions. None of these defendants elected to remove to
federal court within thirty days of service, as they might
have done under 28 U.S.C. §§ 1441 and 1446(b).
  Eventually, of course, the case reached the federal district
court, and from there, this court. Because the process by
which that happened is complex, and because it may have
4                                  Nos. 03-1970 & 03-2352

an effect on federal jurisdiction in this case, we must
retrace those steps as well as possible before considering
anything further. To make a long story short, there is a
serious question whether the party that removed this case
to federal court was entitled to do so at the time when it
acted. If so, then the removal was proper; but if it was too
late, the district court should have remanded the entire
case to the state court from which it came. The details are
somewhat tedious, but they are essential for an understand-
ing of the problem we must address.
  We begin with the state court proceedings, which un-
fortunately are not as clear as one could wish. Our ability
to assess what happened there is hampered by the hap-
hazard condition of the record, which included numerous
undated filings and is missing some pleadings altogether.
Working with the record we have, it is plain that
Homecomings actively participated in the litigation after it
was named in the December 2000 complaint. On February
15, 2001, the Chicago-based law firm of Kropik, Papuga &
Shaw entered an appearance on behalf of Homecomings. On
March 23, 2001, Homecomings filed a motion to strike and
dismiss portions of Boyd’s original complaint. In this
pleading, Homecomings stated that Boyd believed it to be
the “assignee of the subject loan[s].” Homecomings attacked
the merits of Boyd’s TILA claim by arguing, in part, that
the complaint did not allege any facts to support the
conclusion that the loans were subject to TILA disclosures.
Shortly after this pleading was filed, another attorney
named Scott Bjorseth apparently entered the case on behalf
of Homecomings; in any event his name appeared on
several court orders as Homecomings’s representative.
Since Bjorseth has an address in Alton, Illinois, he may
have been acting as Homecomings’s local counsel. If
Bjorseth entered a formal appearance on behalf of Home-
comings, it is not in the record.
Nos. 03-1970 & 03-2352                                     5

  By March 2001, the state court had issued discovery-
related orders predicated on Boyd’s original complaint.
Within the next four months, however, the court granted
Boyd leave to amend her complaint three times. With-
out the benefit of date stamps, we cannot be certain, but
it appears that Boyd filed an Amended Complaint on or
around May 1, 2001, a Second Amended Complaint on or
around July 3, 2001, and a Third Amended Complaint on or
around July 20, 2001. In each of these versions, Boyd
expanded the types of claims against the original four de-
fendants, but she did not name any new defendants.
   Then, on August 20, 2001, the proceedings took a curi-
ous turn. A new party appeared in the litigation, seemingly
out of the blue. Bank One, N.A. (“Bank One”), filed a
complaint against Boyd seeking to foreclose on the loan
secured by the Rockwell property. The complaint alleged
that Bank One was the holder and owner of the Rockwell
note. Two aspects of this complaint are important to high-
light. First, the complaint fails to specify when and where
the assignment from North American to Bank One was
recorded, if at all. This missing information is noteworthy
because the first paragraph of Bank One’s complaint care-
fully provides the details of the transaction between Boyd
and North American, stating: “On August 2, 2000, Shirley
A. Boyd executed and delivered a note payable to the order
of the North American Mortgage Company . . . which was
filed for record in the Recorder’s Office of Madison County,
Illinois, on October 24, 2000 in Book 440 at Page 3672
as Roll and Frame 2548-0961 thereby conveying to the
plaintiff the property . . . .” The second unusual feature of
this complaint is that it was filed on behalf of Bank One by
the law firm of Kropik, Papuga & Shaw, Homecomings’s
attorney of record.
  About a month later, the unfolding events became even
more bizarre. Within a time span of two days (September
27-28, 2001), Bank One assigned both of Boyd’s loans to
6                                    Nos. 03-1970 & 03-2352

a new entity named Residential Funding Corporation
(“Residential”), Homecomings suddenly decided that it had
never been an assignee at all, and Bank One (despite the
fact that it had assigned the loans to Residential just the
previous day) filed a foreclosure action on the Washington
property, again using the services of Homecomings’s at-
torneys. On September 28, 2001, Kropik, Papuga & Shaw
filed three pleadings, one on behalf of Bank One and two on
behalf of Homecomings. The complaint filed on behalf of
Bank One sought to foreclose on the Washington property.
Again, it carefully listed the details of the transaction
between Boyd and North American with respect to the
Washington property, but failed to indicate if and when the
assignment from North American to Bank One was re-
corded.
  The first motion that Kropik, Papuga & Shaw filed
on behalf of Homecomings attacked the merits of Boyd’s
Third Amended Complaint, urging the court to dismiss
the common law rescission remedies that Boyd requested.
The second motion announced, quite remarkably, that
Homecomings was in fact never the assignee of Boyd’s loans
(despite its earlier active participation in the litigation). In
this document, Homecomings informed the court that
Boyd’s loans had been assigned to Residential by Bank One,
and that Homecomings was only “the servicing agent for
Residential . . ., and among other things, receives scheduled
periodic payments and otherwise services the loans for
Residential . . . .” As a result of this “discovery,” Homecom-
ings informed the court that it had no ownership interest in
the loans and no assignee liability under TILA. Attached
affidavits from Homecomings employee Barbara Clay
indicated that one of her duties was to “review files for
loans that are involved in litigation.” Clay stated that
Residential was now the holder of Boyd’s notes and that “at
no time did Homecomings Financial Network, Inc., have
any legal or equitable interest” in Boyd’s properties.
Nos. 03-1970 & 03-2352                                       7

Appended to Clay’s affidavits are documents showing that
the two loans were assigned from Bank One to Residential
on September 27, 2001, one day before Homecomings filed
this motion in state court.
  After this whirlwind of activity, Boyd filed a motion to
consolidate the two foreclosure actions with her lawsuit; the
court granted that motion in an order issued on October 18,
2001. Boyd also moved to substitute defendants. In the
latter motion, Boyd’s attorney stated: “It has come to the
attention of counsel for the Plaintiff that Homecomings
Financial Network appears to be a loan servicing company.
It appears that its parent corporation, Bank One, N.A., as
Trustee may actually be the assignee of both mortgages
that are involved in this lawsuit from North American
Mortgage Company.” Boyd’s attorney informed the court
that, as of October 11, 2001, a “search report of the proper-
ties does not reflect any recorded assignment from Defen-
dant North American Mortgage Company to any other
party.” Finally, Boyd’s motion clarified that her failure to
join Bank One as a defendant “was inadvertent, as there
was no information reasonably available to Plaintiff to put
her on notice that North American Mortgage Company had
assigned its notes and mortgages to Bank One, N.A.,
instead of Homecomings Financial Network.” Boyd’s motion
to substitute indicated that she was seeking the court’s
permission to name Bank One as a new defendant. The
state court, however, issued an order on October 19, 2001,
that granted Boyd permission to substitute Residential as
a defendant in the place of Homecomings. This order
indicates that Scott Bjorseth appeared for both Homecom-
ings and Residential.
  As soon as Boyd filed her Fourth Amended Complaint,
substituting Residential for Homecomings as a defendant,
Residential filed a notice of removal in federal district court
pursuant to 28 U.S.C. § 1441. Residential’s hurry to remove
is evident from the fact that it filed the notice of removal
8                                    Nos. 03-1970 & 03-2352

nearly a month before Boyd even served it with the Fourth
Amended Complaint. Because Boyd had asserted TILA
violations against it, Residential requested removal based
on the district court’s federal question jurisdiction, see 28
U.S.C. § 1331.
  Three days after Residential requested removal, the
remaining three defendants—Orr, Phoenix, and North
American—filed written consents to the removal with the
court. Approximately three weeks later, Bank One also con-
sented to the removal. Bank One’s written consent is
especially odd because Boyd had not yet named Bank One
as a defendant; she did not do so until she filed her
Fifth Amended Complaint three months later, on March 6,
2002. Interestingly, Bjorseth, who had represented
Homecomings in the state court proceedings, informed
the district court that he would be representing both
Residential and Bank One.
  Shortly after the case had been removed, Boyd filed a
motion to remand the case back to the state court. In her
supporting brief, Boyd attached documents demonstrating
the unusual chain of assignments that had occurred in the
midst of litigation. This evidence raised the possibility that
the unrecorded alleged assignment from Bank One to
Residential of September 27, 2001, was effected to allow the
defendants a second opportunity to remove. Based on its
order denying remand, however, the district court did not
appear troubled by the sequence of events we have outlined.
In particular, the district court was not persuaded by Boyd’s
argument that Residential was aware of the litigation when
Homecomings was served in early 2000. The court com-
mented that “[t]he fact remains that Residential is a
different company that was brought in as a defendant long
after the case was originally filed and is entitled to remove
the case if it satisfies the statutory criteria and follows the
procedural requirements governing removal.” We are not so
Nos. 03-1970 & 03-2352                                      9

confident that this chain of assignments must, as a matter
of law, be taken at face value.

                             II
  Because it implicates federal jurisdiction, we must exam-
ine the propriety of removal whenever it is fairly drawn into
question. This is a question we review de novo. Chase v.
Shop ‘N Save Warehouse Foods, Inc., 110 F.3d 424, 427 (7th
Cir. 1997). As the party seeking to invoke federal jurisdic-
tion, Residential bears the burden of demonstrating that
removal is proper. See NLFC, Inc. v. Devcom Mid-America,
Inc., 45 F.3d 231, 237 (7th Cir. 1995); Jones v. Gen. Tire &
Rubber Co., 541 F.2d 660, 664 (7th Cir. 1976). Removal is
proper if it is based on statutorily permissible grounds, 28
U.S.C. § 1441, and if it is timely. 28 U.S.C. § 1446. Accord-
ing to 28 U.S.C. § 1441(b), “Any civil action of which the
district courts have original jurisdiction founded on a claim
or right arising under the Constitution, treaties or laws of
the United States shall be removable without regard to the
citizenship or residence of the parties.” It is clear that the
federal truth-in-lending claim falls within the federal-
question jurisdiction of the court. The murky problem is
whether Residential’s removal was timely.
   The removal statute provides, “The notice of removal of
a civil action or proceeding shall be filed within thirty days
after the receipt by the defendant, through service or oth-
erwise, of a copy of the initial pleading . . . .” 28 U.S.C.
§ 1446(b) (emphasis added). There is no dispute that
Residential filed its notice of removal within this time
period—it “otherwise” received a copy of the initial pleading
naming it even before formal service. The statute uses the
term defendant in the singular, however, and thus it does
not directly address the question how to calculate the
timing for removal in the event that multiple defendants
10                                   Nos. 03-1970 & 03-2352

are served at different times, one of them outside the
original thirty-day period.
  Although the Supreme Court has not confronted this
question directly either, it has recently emphasized the re-
moval rights of a defendant:
     We read Congress’ provisions for removal in light of a
     bedrock principle: An individual or entity named as a
     defendant is not obliged to engage in litigation unless
     notified of the action, and brought under a court’s au-
     thority, by formal process. Accordingly, we hold that
     a named defendant’s time to remove is triggered by
     simultaneous service of the summons and complaint, or
     receipt of the complaint, “through service or otherwise,”
     after and apart from service of the summons, but not by
     mere receipt of the complaint unattended by any formal
     service.
Murphy Bros., Inc. v. Michetti Pipe Stringing, Inc., 526 U.S.
344, 347-48 (1999). The Court went on to say that “one
becomes a party officially, and is required to take action in
that capacity, only upon service of a summons or other
authority-asserting measure stating the time within which
the party served must appear and defend.” Id. at 350.
Indeed, “the summons continues to function as the sine qua
non directing an individual or entity to participate in a civil
action or forgo procedural or substantive rights.” Id. at 351.
Relying on the Court’s language in Murphy, the Eighth
Circuit held that a later-named defendant has thirty days
from the date of service on it to file a notice of removal,
even if the first-named co-defendants did not remove within
the original thirty days of service. Marano Enterps. of
Kansas v. Z-Teca Restaurants, L.P., 254 F.3d 753, 757 (8th
Cir. 2001). Nevertheless, the two leading treatises diverge
in their recommendations of how to resolve this issue.
Wright & Miller recommends permitting a later-served
defendant 30 days to remove, whereas Moore’s Federal
Nos. 03-1970 & 03-2352                                    11

Practice recommends that the 30-day time limit should
begin to run from service on the first defendant. See 14C
Charles A. Wright, Arthur R. Miller & Edward H. Cooper,
Federal Practice and Procedure: Jurisdiction § 3739 at 336-
39 (3d ed. 1998); Moore’s Federal Practice § 107-30[3][a] (3d
ed. 1997).
   Determining whether a later-named defendant can re-
move an action pending in state court outside of the original
thirty-day window is a question of first impression in our
court. In Boyd’s case, the loans that are the subject of
litigation were allegedly assigned to the removing party
nearly ten months after the original complaint was filed in
state court. To permit TILA defendants to use assignee
liability in this way creates the potential for forum-shop-
ping, because once a TILA defendant has tested the waters
in state court, it can simply assign the loan to a new entity
that has the option promptly to remove the case to federal
court. The issue here is even more complicated because the
facts suggest that Residential may have been aware of the
litigation well before it agreed to accept the assignment of
Boyd’s loans on September 27, 2001.
  In our view, no matter how one decides the question
whether a bona fide assignee who takes without notice of
pending litigation is entitled to remove within thirty days
of service, the removal statutes do not permit defendants
deliberately to manipulate assignments so that the 30-day
time limit on removal found in § 1446(b) can be avoided.
While this is not quite the situation usually encountered
under 28 U.S.C. § 1359, which states that “a district court
shall not have jurisdiction of a civil action in which any
party, by assignment or otherwise, has been improperly or
collusively made or joined to invoke the jurisdiction of such
court,” the policy behind that statute is implicated here.
Without further factual findings in the district court, we
cannot tell whether the assignment to Residential was an
innocent one in the ordinary course of business, or one de-
12                                 Nos. 03-1970 & 03-2352

signed to make removal possible. It is therefore premature
to try to decide whether Residential was entitled to remove
when it did.
   A number of important questions must be resolved on
remand. The court must decide when, if ever, the alleged
multiple assignments of Boyd’s loans were executed and
recorded. At oral argument, Boyd’s attorney stated that he
was unaware of any assignments from North American un-
til the state court filings by Bank One in September 2001.
When we asked appellees’ counsel whether the assignments
had been recorded, we received the unsatisfactory answer
that Boyd had a year to conduct discovery and “find out
what was going on with the loans.” Determining the
propriety of Residential’s removal requires the court to
ascertain the precise dates that the assignments from North
American to Bank One and from Bank One to Residential
were recorded.
  Second, the court must develop a more detailed account
of the relationship between Homecomings, Residential,
Bank One, and North American with respect to Boyd’s
loans. Residential submitted an affidavit by Michael Seats,
in his capacity as the secretary of Residential Funding
Corporation, stating that Residential and Homecomings are
“separate legal entities.” While this may be technically
accurate, Illinois filings show that Michael Seats is the
secretary of both Residential and Homecomings. In fact,
these filings reveal that Residential and Homecomings have
the same Minneapolis address. Our preliminary investiga-
tion suggests that Homecomings may be a wholly owned
subsidiary of the GMAC-Residential Funding Corporation,
which is a subsidiary of the General Motors Corporation. If
this is true, we question some of the statements made by
counsel at oral argument regarding Residential’s liability
prior to the assignment from Bank One. Appellees’ counsel
informed us repeatedly that Residential could not have any
TILA assignee liability until September 27, 2001, the day it
Nos. 03-1970 & 03-2352                                     13

accepted the assignment from Bank One. Indeed, counsel
scoffed at the suggestion that an assignee would accept
TILA liability for the purpose of creating federal removal
jurisdiction. When asked, however, why Residential took
the assignment while the case was pending in Madison
County state court, we received the implausible answer that
“there was no evidence that [Residential] was aware of
that.” When we asked whether the state court proceedings
were a matter of public record, counsel stated: “Well, I don’t
know that [Residential] was looking at the public rec-
ords . . . .” In state court documents, Boyd alleged that Bank
One is the parent corporation of Homecomings. At oral
argument, appellees stated that Bank One and Residential
are “entirely unrelated.” The district court must establish
the relationships among all of the defendants with respect
to Boyd’s initial transaction and alleged assignments.
   Finally, the fact that Homecomings, Residential, and
Bank One were represented by the same attorneys in the
state and district courts requires further investigation, as
it suggests that the defendants may have had undisclosed
relationships. (Recall that in state court, Kropik, Papuga &
Shaw and Bjorseth represented Homecomings. Kropik,
Papuga & Shaw also filed pleadings on behalf of Bank One.
In district court, Bjorseth filed appearances for both
Residential and Bank One.) It is difficult to conceive of a
litigation scenario in which these entities would choose to
cooperate, given that each of their interests would be best
served by trying to prove that one of the other defendants
was the appropriate assignee. If Residential’s counsel also
represented both Homecomings and Bank One throughout
the state court proceedings, then it seems unlikely that the
three companies were acting independently in the litigation.
  It appears at this point that Homecomings actively par-
ticipated in the state court proceedings, never bothering to
“review” Boyd’s loan documents until nearly ten months
14                                  Nos. 03-1970 & 03-2352

after the original complaint was filed. Coincidentally,
Homecomings discovered that it was not the assignee the
day after the loans were assigned from Bank One to
Residential. On the same day, Bank One, until then absent
from the litigation and apparently no longer the assignee of
Boyd’s loans, filed a second foreclosure action. These events
occurred in the absence of any proof that the assignments
to Bank One or to Residential were ever recorded. Further,
these events were brought to the state and district court’s
attention by attorneys representing all three assignee
defendants. If Residential was a de facto participant in the
litigation from the beginning, or if any other facts suggest
that manipulation of the removal process was occurring, the
district court should remand the entire case to state court
in accordance with the timely motion to remand that Boyd
filed.
  For these reasons, we REVERSE and REMAND to the dis-
trict court for further proceedings consistent with this
opinion.

A true Copy:
       Teste:

                        ________________________________
                        Clerk of the United States Court of
                          Appeals for the Seventh Circuit

                   USCA-02-C-0072—4-28-04