The choice of forum can be outcome-determinative. Plaintiffs naturally sue in plaintiff-friendly places, affectionately known as "hellholes" by defendants. Defendants, of course, try to move the suit to a more favorable venue, frequently a federal forum.
A defendant can remove a case to federal court if it could have been filed there originally. Federal courts have original jurisdiction in federal question cases and in diversity actions when the amount in controversy exceeds $75,000 and the suit is between citizens of different states.
A defendant loses the right to remove if he does not do so within 30 days after receipt of the first pleading that sets forth on its face a removable claim. 28 U.S.C. § 1446(b).
These rules were applied by the Fifth Circuit in Cuevas v. BAC Home Loans Servicing, LP, 2011 U.S. App. LEXIS 15499 (5th Cir. July 27, 2011).
The Bank Forecloses
The Cuevases fell behind on their mortgage. The bank notified them of default and gave them an opportunity to cure. The Cuevases alleged they mailed a cashier's check for the full amount due but the bank refused to accept it. The bank then foreclosed, purchased the home at the foreclosure sale and, to add insult to injury, offered to sell the Cuevases their own home back for a profit.
The Cuevases Sue
The Cuevases were not amused. They sued for wrongful foreclosure, alleging state law claims only. They sued three defendants, only one of whom, Countrywide Home Loans of Texas (Countrywide), was a Texas corporation. Because there was not complete diversity on the face of the Cuevases' petition, the case was not removable unless the Texas defendant was improperly joined.
Defendants did not remove the case to federal court. More than 30 days passed.
The Plot Thickens
Then the Cuevases added a claim under the Truth in Lending Act (TILA), a federal statute, giving rise to federal question jurisdiction.
The Defendants Remove to Federal Court
Defendants promptly removed the case to federal court, alleging federal question and diversity jurisdiction, asserting that Countrywide's presence in the lawsuit did not destroy diversity because it was improperly joined.
The improper joinder doctrine constitutes a narrow exception to the rule of complete diversity. To establish improper joinder, the removing party must demonstrate either:
- actual fraud in pleading jurisdictional facts; or
- inability of the plaintiff to establish a cause of action against the non-diverse party in state court.
The Cuevases Ask to Go Back to State Court
The Cuevases moved to remand. They agreed that the federal court had federal question jurisdiction, but argued that the district court could not exercise removal jurisdiction based on diversity because:
- Countrywide's notice of removal was not filed within 30 days after the original complaint, and
- defendants failed to prove joinder was improper.
The District Court Remands (But Not for Improper Removal)
The district court held that it did not have removal jurisdiction based on diversity because defendants failed to prove improper joinder and removal was untimely.
Nevertheless, it held that it did have removal jurisdiction because the complaint alleged a federal claim under the TILA. But then the district court dismissed the TILA claim and remanded, declining to exercise supplemental jurisdiction over the state law claims. Defendants appealed.
Here's Where It Gets Interesting
Was the district court obliged to hear the case after it dismissed the federal claim because it had diversity jurisdiction over the state law claims?
Whether the court could remand the state law claims depended on whether its jurisdiction over them was supplemental or whether it had diversity jurisdiction. If supplemental, it could remand; if due to diversity, it could not.
A. Effect of Waiver of Right to Remand
The Fifth Circuit first noted that no court of appeals had yet decided "the issue of whether a party's previous failure to argue fraudulent joinder and timely remove the case on the basis of diversity jurisdiction affects the district court's authority to remand state law claims after the case has been properly removed to district court."
The court concluded that once the district court assumed jurisdiction over a properly removed case, whether a party had previously waived its right to a federal forum by failing to timely remove was irrelevant to whether the district court could or should remand. What was determinative was the court's jurisdiction over the claims at the time of remand.
B. Improper Joinder
Whether the court had diversity jurisdiction turned on whether Countrywide was improperly joined.
The test for improper joinder 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.
Because Countrywide did not originate or service the Cuevases' loan, there was no possibility the Cuevases could recover against it.
Therefore, the parties were diverse and the district court had diversity jurisdiction over the state law claims at the time of remand. When a district court has original subject matter jurisdiction over state law claims (such as in a diversity suit) it cannot decline to exercise it and send the claims back to state court; exercise of that jurisdiction is mandatory. Consequently, the district erred in remanding the state law claims.
Countrywide won the forum fight. The Cuevases were stuck in federal court.
I am confused
1. Why did the district court find removal on the basis of diversity was untimely? If Countrywide was properly joined, as the district court found, there was not complete diversity, so the case was not removable until the federal claim was added. So how could failure to remove within 30 days from the original complaint be untimely?
2. The Fifth Circuit assumed the case was properly removed, but was it?
(a) If Countrywide was properly joined, there was no diversity jurisdiction, the only basis for removal was federal question, and when the federal question was dismissed, the court could decline to exercise supplemental jurisdiction.
(b) If Countrywide was improperly joined, as the Fifth Circuit found, then there was diversity jurisdiction and failure to remove within 30 days waived the right to remove, didn't it? So why wasn't the removal based on federal question jurisdiction more than 30 days later untimely?
(c) The opinion recited that all parties agreed that the court had federal question jurisdiction. But parties cannot create jurisdiction by agreement.
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