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Bailey v. Deutsche Bank Trust Co.

United States District Court, Fourth Circuit

June 12, 2013



DEBORAH K. CHASANOW, District Judge.

Presently pending and ready for resolution are motions to dismiss filed by Defendants Deutsche Bank Trust Company ("Deutsche Bank") and Ocwen Loan Servicing, LLC ("Ocwen") (ECF No. 13), Saxon Mortgage Services, Inc. ("Saxon") (ECF No. 14), and Novation Companies, Inc., f/k/a NovaStar Financial, Inc. ("Novation") (ECF No. 19). The relevant issues have been briefed and the court now rules pursuant to Local Rule 105.6, no hearing being deemed necessary. For the reasons that follow, Novation will be dismissed pursuant to the doctrine of fraudulent joinder; its motion to dismiss for failure to state a claim will be denied as moot; and the motions to dismiss filed by the remaining defendants will be granted.

I. Background

Plaintiff Sherry J. Bailey commenced this action on or about November 15, 2012, by filing a complaint in the Circuit Court for Prince George's County, Maryland. The complaint relates to a parcel of real property in Oxon Hill, Maryland, that Plaintiff purchased in 2006 ("the Property"). Seeking a loan for the entire purchase amount, Plaintiff "contacted [Novation] to discuss financing" and "completed [a] loan application... indicating that the Property was being purchased for investment purposes." (ECF No. 2 ¶ 10). Plaintiff was unaware at the time that "100 percent loans were only available for properties being purchased as residences by the buyer"; thus, she "did not qualify... since she was buying for investment purposes." ( Id. at ¶ 12). The requested loan was approved, however, because Novation allegedly "changed [Plaintiff's] loan application to reflect that the Property was being purchased as [her] principal residence." ( Id. at ¶ 13). Plaintiff noticed this alteration at closing and "changed the application back to investment, " but, "[a]t some time after closing and unbeknownst to [P]laintiff, [Novation] changed the application back to residential use." ( Id. at ¶¶ 14, 15).[1]

In 2008, Plaintiff fell behind on her mortgage payments and defaulted on the loan. On December 21, 2009, Novation transferred the defaulted loan to "Deutsche Bank as trustee for a securitized trust." ( Id. at ¶ 16). Saxon, the initial servicer, commenced a foreclosure action in January 2010. On or about May 20, 2010, "Deutsche Bank appointed Ocwen as the loan service[r.]" ( Id. at ¶ 17). Plaintiff asserts that she "contacted the mortgage servicers, Saxon and Ocwen, ... about her [financial] problems, and she was advised by both that they would work with her to modify the loan so that she would be able to retain the Property and it would not be foreclosed upon." ( Id. at ¶ 19). "As a result of th[o]se assurances, [P]laintiff invested over $60, 000... to improve the Property." ( Id. ). Nevertheless, the loan was never modified, the foreclosure action proceeded, and the Property was sold at a foreclosure sale on October 8, 2010.

As to Novation and Deutsche Bank, Plaintiff alleges fraud related to the alteration of her loan application. She further alleges negligent misrepresentation against Deutsche Bank, Saxon, and Ocwen based on the servicers' false assurances concerning a loan modification. Plaintiff seeks an award of compensatory damages in the amount of $300, 000.00.

Deutsche Bank and Ocwen removed to this court on January 14, 2013, citing diversity of citizenship as the jurisdictional basis. The removal notice indicates that Plaintiff is a citizen of Maryland, that Deutsche Bank is a New York corporation, and that the sole member of Ocwen, a limited liability company, is a Delaware corporation with its principal place of business in Florida. The notice further reflects that Saxon, a Texas corporation, consented to removal and that Novation, a Maryland corporation, was "fraudulently joined." (ECF No. 1, at 3).

On January 18, counsel for Novation entered an appearance, filed a disclosure statement pursuant to Local Rule 103.3, and requested an extension of time to respond to the complaint, asserting that he had "contacted Plaintiff's counsel to explain that... [Novation] did not originate the loan at issue in this case" and that "[a] brief extension of time would allow the parties additional time to look into this matter and confirm that the correct entities have been named" (ECF No. 10 ¶ 7).

On January 22, Deutsche Bank and Ocwen filed a joint motion to dismiss for failure to state a claim upon which relief may be granted. (ECF No. 13). Saxon filed a similar motion the following day. (ECF No. 14). Approximately one week later, Novation filed a consent to removal - advising that its consent was "without prejudice to its Motion to Dismiss for improper joinder" (ECF No. 18) - along with a motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(6) and (9)(b) (ECF Nos. 19, 20).[2] Plaintiff opposed each of these motions (ECF Nos. 23-25) and Defendants filed replies (ECF Nos. 26-28).

II. Fraudulent Joinder

Although this case was removed on the basis of diversity of citizenship, the parties are not fully diverse, as both Plaintiff and Novation are Maryland citizens. Thus, jurisdiction could only be proper if Novation was "fraudulently joined."

As Judge Nickerson recently explained in Barlow v. John Crane Houdaille, Inc., Civ. No. WMN-12-1780, 2012 WL 538883, at *2 (D.Md. Nov. 1, 2012):

The doctrine of fraudulent joinder is an exception to the complete diversity rule normally required for a federal court to exercise diversity jurisdiction. Bendy v. C.B. Fleet Co., Civ. No. CCB-10-3385, 2011 WL 1161733, *3 (D.Md. Mar. 28, 2011). Defendants opposing remand, when removal was based on the doctrine of fraudulent joinder, carry a very heavy burden. Mayes v. Rapoport, 198 F.3d 457, 464 (4th Cir. 1999). The defendant must show either that (1) there has been outright fraud in the plaintiff's pleading, or (2) "there is no possibility that the plaintiff would be able to establish a cause of action against the in-state defendant in state court." Id. (quoting Marshall v. Manville Sales Corp., 6 F.3d 229, 232 (4th Cir. 1993)). In considering whether a party has been fraudulently ...

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