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Moore v. Svehlak

United States District Court, Fourth Circuit

July 11, 2013

CHARLES E. MOORE, et ux., Plaintiffs,
v.
ROBERT S. SVEHLAK, et al., Defendants.

MEMORANDUM OPINION

ELLEN LIPTON HOLLANDER, District Judge.

This case concerns removal procedure from state to federal court following the enactment of the Federal Courts Jurisdiction and Venue Clarification Act of 2011 (the "JVCA"), Pub. L. No. 112-63, 125 Stat. 758 (Dec. 7, 2011).

On or about May 30, 2012, Charles and Felicia Moore, plaintiffs, filed suit in the Circuit Court for Baltimore City against twenty-eight defendants, asserting a variety of claims in connection with an alleged "hard money lending scam" involving "fraudulent real estate and debt collection practices." Complaint ¶ 1 (ECF 2). The thirty-count Complaint includes federal claims under 42 U.S.C. § 1983 and the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. §§ 1961 et seq., as well as various Maryland statutory and common law causes of action, including claims of fraud and claims to quiet title to four parcels of real property. The defendants are Imagine Capital, Inc. ("Imagine Capital"); Robert Svehlak; Beverly Svehlak; Neil Roseman; Lead Probe, Inc. ("Lead Probe"); and Boomerang Properties, LLC ("Boomerang") (collectively, the "Imagine Defendants"); the King Title Company and David Pierce (collectively, the "King Defendants"); Stonegate Title Company; Robert Brendel; Cynthia Brendel; Robert C. Brendel, P.A.; Ronald Katz; and Ronald B. Katz, P.A. (collectively, the "Stonegate Defendants"); Holderness, Menchel & Alter, LLC; Holderness & Associates, LLC; and James Holderness (collectively, the "Holdness Defendants"); Granite Finance, LLC; Granite Partners, LLC; Granite Development, LLC; and Michael Walsh (collectively, the "Granite Defendants"); E & W Realty, LLC and Katheryn Jewell (collectively, "E&W Defendants"); Cardinal Financial Company L.P. ("Cardinal"); Stephanie Mballa; B. Sean Radin; Wells Fargo Bank, N.A. ("Wells Fargo"); and ETS Maryland, LLC ("ETS Maryland").

On September 12, 2012, the Imagine Defendants and the King Defendants (collectively, the "Removing Defendants") jointly filed a Notice of Removal (ECF 1), by which they removed the action to federal court on the basis of federal question jurisdiction, see 28 U.S.C. §§ 1331, 1441, and federal civil rights removal jurisdiction, see 28 U.S.C. § 1443. The Removing Defendants represented that seven other defendants who had been served "expressed their consent... to removal." Notice of Removal ¶ 3. They also asserted: "Upon information and belief there are no other served defendants necessary for removal." Id. Most, but not all, of the other defendants subsequently filed notices in this Court purporting to consent to removal.

On October 12, 2012, plaintiffs filed a timely Motion to Remand ("Motion") (ECF 78), which has been fully briefed by the parties.[1] See 28 U.S.C. § 1447(c) (providing that a "motion to remand the case on the basis of any defect other than lack of subject matter jurisdiction must be made within 30 days after the filing of the notice of removal"). No hearing is necessary to resolve the matters at issue. See Local Rule 105.6. For the reasons that follow, I conclude that removal was improper. Accordingly, I will grant the Motion and remand the suit to the Circuit Court for Baltimore City.

Background

For purposes of this Memorandum Opinion, it is unnecessary to recount fully the allegations of plaintiffs' Complaint. In summary, their claims arise out of a $200, 000 loan from Imagine Capital to Mr. Moore, for the purpose of rehabilitating two residential properties in Baltimore City owned by Mr. Moore. See Complaint ¶¶ 2-3. Mr. and Ms. Moore both executed personal guaranties of the loan obligation. See id. ¶¶ 3-4. According to plaintiffs, the terms of the loan agreement required Imagine Capital to place $145, 000 of the total $200, 000 in a "Construction Trust Escrow Account, " but Imagine Capital failed to do so. Id. ¶¶ 4-5. As a result, Mr. Moore was unable to complete the rehabilitation projects and incurred substantial losses. Id. ¶ 7. Moreover, despite Imagine Capital's noncompliance with its obligations under the loan agreement, Imagine Capital allegedly utilized confessed judgment provisions, or "cognovits, " contained in the loan instruments and guaranties to obtain fraudulent judgments against the Moores. See id. ¶¶ 8-10. Through its "misuse" of the "fraudulently-obtained confessed judgments, " Imagine Capital allegedly "leverag[ed] [Mr. Moore] to convey a secured property to a related firm of Imagine Capital, " and damaged the Moores' credit, resulting in the foreclosure of the Moores' principal residence. Id. ¶¶ 9-11. Plaintiffs charge that each of the defendants, other than Wells Fargo and ETS Maryland, played some role in Imagine Capital's alleged fraudulent scheme. As to Wells Fargo and ETS Maryland, plaintiffs have sued them "only for the purposes of quieting title in real property." Id. ¶ 1.

As noted, plaintiffs filed suit in State court on or about May 30, 2012, and the Removing Defendants removed the case to this Court on September 12, 2012. In the Notice of Removal, they asserted that, as of the date of removal, the state court's records reflected that all of the Imagine Defendants (other than Lead Probe and Mr. Roseman) had been served with a summons and a copy of the Complaint, as had all of the Stonegate Defendants, Cardinal, Ms. Mballa, Wells Fargo, and ETS Maryland. Notice of Removal ¶ 1. However, they did not indicate the specific dates of service. The Removing Defendants represented that Cardinal and the Stonegate Defendants consented to removal and asserted that there were "no other served defendants necessary for removal." Notice of Removal ¶ 3.

The day after the case was removed, this Court issued its Standing Order Concerning Removal (ECF 14), which directs a party removing an action to this Court to provide certain information regarding the removal, including the "date(s) on which each defendant was served with a copy of the summons and complaint"; the "reasons why removal has taken place at this time" if "removal takes place more than thirty (30) days after any defendant was first served with a copy of the summons and complaint"; and "[i]dentification of any defendant who was served in the state court action prior to the time of removal who did not formally join in the notice of removal and the reasons why such defendant did not join." Id. ¶¶ 1, 3, 5. On September 20, 2012, I issued an Order (ECF 43) directing the Removing Defendants to address two additional matters in their response to the Standing Order: (1) whether all of plaintiffs' state law claims came within the Court's supplemental jurisdiction under 28 U.S.C. § 1367; and (2) clarification of the basis for the removing defendants' "apparent assertion that the consent of all served defendants is not necessary for removal.'"

In the meantime, plaintiffs voluntarily dismissed their claims against Mr. Radin. See ECF 50 & ECF 81. With the exception of ETS Maryland, all other defendants filed notices of consent to removal. See ECF 13 (Stonegate Defendants); ECF 15 (E & W Defendants); ECF 24 (Cardinal); ECF 49 (Wells Fargo); ECF 52 (Ms. Mballa); ECF 54 & ECF 61 (Granite Defendants); ECF 64 (Holderness Defendants).[2] ETS Maryland has never filed a consent.

On September 27, 2012, the Removing Defendants filed their Response to the Standing Order (ECF 65), in which they provided a chart setting out the dates, as applicable, that each defendant had been served and had consented to removal. The chart stated that all of the Imagine Defendants (other than Lead Probe and Mr. Roseman) were served on August 13, 2012. The Stonegate Defendants, Wells Fargo, and the Granite Defendants (other than Mr. Walsh) were each served sometime before August 13, 2012. The King Defendants, Cardinal, Ms. Mballa, and ETS Maryland were each served at some point between August 13, 2012, and September 12, 2012, the date that the action was removed to federal court.[3] Mr. Walsh was not served until September 27, 2012, i.e., after removal; he filed his consent one day later. And, defendants asserted that Lead Probe, Mr. Roseman, the E & W Defendants, and the Holderness Defendants were never served.[4]

The Removing Defendants also summarized the dates on which each applicable defendant had filed a consent to removal. Of import here, the Stonegate Defendants, Wells Fargo, Ms. Mballa, and the Granite Defendants (other than Mr. Walsh) each filed notice of consent to removal more than thirty days after being served. The Holderness Defendants were the last defendants to consent to removal; on September 27, 2012, they filed a "Notice Joining in the Petition for Removal" (ECF 64), in which they "incorporated by reference" the Removing Defendants' Notice of Removal and stated: "Upon information and belief, all parties to the case have formally consented to removal, with the exception of ETS Maryland LLC, which is not a party required to consent pursuant to 28 U.S.C. § 1441(c)(2) and which is not a proper party in this action."

In addition, the Removing Defendants asserted that all of plaintiffs' state law claims come within the Court's supplemental jurisdiction under 28 U.S.C. § 1367(a). With some exceptions, § 1367(a) provides that "the district courts shall have supplemental jurisdiction over all other claims that are so related to claims in the action within [the district courts'] original jurisdiction that they form part of the same case or controversy under Article III of the United States Constitution." Here, the Removing Defendants' assertion of original jurisdiction was based on federal question jurisdiction as to plaintiffs' federal law claims, pursuant to 28 U.S.C. § 1331, removal of which is authorized by 28 U.S.C. § 1441. Because § 1331 would not provide original jurisdiction with respect to plaintiffs' state law claims, the state law claims would need to "form part of the same case or controversy" as the federal claims, within the meaning of 28 U.S.C. § 1367(a), in order for the Court to exercise jurisdiction over them.[5]

According to the Removing Defendants, the state law claims form part of the same case or controversy as the federal claims. They also contended that the consent of all defendants was not necessary in order to remove the case. Relying on the recently enacted JVCA, they claimed that only the defendants against whom federal claims were asserted were required to consent to removal; consent to removal was not necessary from defendants against whom only state law claims were asserted. In this case, plaintiffs asserted only state law claims against Wells Fargo, ETS Maryland, Ms. Mballa, and the Granite Defendants (collectively, the "State Law Defendants"). Nevertheless, the Removing Defendants pointed out that all of the State Law Defendants had, in fact, consented to removal, with the exception of ETS Maryland. And, as to ETS Maryland, the Removing Defendants asserted that it was "not a proper party in this case." ECF 65 at 2.

Additional facts are included in the Discussion.

Discussion

"[F]ederal courts are courts of limited jurisdiction, [and] should construe removal statutes narrowly, [with] any doubts... resolved in favor of state court jurisdiction." Barbour v. Int'l Union, 640 F.3d 599, 617 (4th Cir. 2011) (en banc) (abrogated in part on other grounds by the JVCA). In their Motion, plaintiffs assert that removal here violates one of the important procedural limitations on defendants' right of removal: the "rule of unanimity, " embodied in 28 U.S.C. § 1446(b)(2)(A).[6] As amended by the JVCA, § 1446(b)(2)(A) provides: "When a civil action is removed solely under section 1441(a), all defendants who have been properly joined and served must join in or consent to the removal of the action."[7] Plaintiffs argue that removal was improper because some of the served defendants failed to join or consent to removal on a timely basis, and ETS Maryland never consented to removal.[8]

Defendants posit five arguments in response, which I have reordered for purposes of discussion. First, defendants contend that this case is not governed by the rule of unanimity under 28 U.S.C. § 1446(b)(2)(A), because that rule applies only "[w]hen a civil action is removed solely under [28 U.S.C. §] 1441(a)." (Emphasis added). Given that defendants also invoked the civil rights removal statute, 28 U.S.C. § 1443, in their Notice of Removal, they contend that the rule of unanimity does not apply to this action. Second, defendants maintain that, pursuant to 28 U.S.C. § 1441(c), consent was only required from the defendants against whom federal claims were asserted, and all of those defendants who had been served at the time of removal consented to the removal. Third, even if the State Law Defendants' consent to removal was required, defendants argue that they all eventually filed effective consents, except ETS Maryland. Fourth, defendants contend that the Holderness Defendants' "Notice Joining in the Petition for Removal" was sufficient to cure any defect in removal as to any defendants other than ETS Maryland, because it incorporated by reference the original Notice of Removal and expressly asserted that all defendants other than ETS Maryland consented. Finally, as to ETS Maryland, defendants argue that its consent to removal is not required, because ETS Maryland is only a "nominal defendant." I address these arguments in turn.

A. Whether the Rule of Unanimity Applies

As noted, the rule of unanimity embodied in 28 U.S.C. § 1446(b)(2)(A) is limited, by its terms, to actions "removed solely under [28 U.S.C. §] 1441(a)." (Emphasis added). In turn, § 1441(a) provides for removal to federal court of "any civil action brought in a State court of which the district courts of the United States have original jurisdiction." However, "[s]ome federal statutes authorize removal even when no statutory grant of [original] jurisdiction to the federal courts permits an identical suit to be commenced there." WRIGHT, MILLER, COOPER & STEINMAN, 14B FEDERAL PRACTICE & PROCEDURE § 3721, at 19 (4th ed. 2009, 2013 Supp.) ("WRIGHT & MILLER"). The civil rights removal statute, 28 U.S.C. § 1443, is one such statute.

Section 1443 provides:

Any of the following civil actions or criminal prosecutions, commenced in a State court may be removed by the defendant to the district court of the United States for the district and division embracing the place wherein it is pending:
(1) Against any person who is denied or cannot enforce in the courts of such State a right under any law providing for the equal civil rights of citizens of the United States, or of all persons within the jurisdiction thereof;
(2) For any act under color of authority derived from any law providing for equal rights, or for refusing to do any act on the ground that it would be inconsistent with such law.

Defendants' apparent position is that removal is authorized under § 1443 because plaintiffs' Complaint "alleges acts in violation of the plaintiffs' civil rights." Notice of Removal ¶ 2.[9] This position is incorrect.

As the WRIGHT & MILLER treatise explains, the Supreme Court has adopted a "very narrow reading of Section 1443, " which "has remained stable over many years." 14C WRIGHT & MILLER § 3727, at 302. According to the Supreme Court, removal under subsection (1) of § 1443 is "warranted only if there is a solid basis for predicting that the defendant's civil rights will be denied in the state court. The prediction must come from reference to a law of general application' - a state statute or the state constitution - that denies the defendant's civil rights, " rather than "illegal [ ]or corrupt acts of individual state officials" or "the mere possibility of an unfair trial in state court." Id. at 291-93 (quoting Georgia v. Rachel, 384 U.S. 780, 800 (1966)) (emphasis added) (footnotes omitted). Moreover, the Supreme Court has "interpreted the first portion of subsection (2) of the statute to apply only to federal officers or agents and those authorized to act with or for them in affirmatively executing duties under a federal law providing for equal civil rights." 14C WRIGHT & MILLER § 3727, at 299 (citing City of Greenwood v. Peacock, 384 U.S. 808, 824 (1966)). And, "[w]ith respect to the second portion of Section 1443(2), for refusing to do any act on the ground that it would be inconsistent with such [civil rights] law, ' the Supreme Court [has] concluded that it is clear that removal under that language is available only to state officers.'" 14C WRIGHT & MILLER § 3727, at 300 (footnotes omitted) (quoting Peacock, 384 U.S. at 824 n.22).

Defendants have not alleged that litigation in state court will result in denial of their own constitutional rights, so as to come within § 1443(1). Rather, removal is grounded on the plaintiffs ' allegation that defendants violated plaintiffs ' federal civil rights. Moreover, none of the defendants is a federal officer or a state officer, or an agent of such an officer, so as to come within § 1443(2). Indeed, looking to the plain language of § 1443(2), there is no claim in this suit that defendants performed some act "under color of authority derived from any law providing for equal rights, " or that they "refus[ed] to do any act on the ground that it would be inconsistent with such law." Rather, plaintiffs' claim is that defendants' acts denied plaintiffs ' federal civil rights. Such a claim is not removable under § 1443.

Further, plaintiffs' civil rights claim under 42 U.S.C. § 1983, contained in Count Six of the Complaint, asserts that certain defendants "concocted an elaborate scheme to deprive the Moores... of their rights to Due Process under the 14th Amendment of the U.S. Constitution." Complaint ¶ 283. An allegation of due process violation under § 1983 is outside the rubric of removal under § 1443 for an additional reason. As the Supreme Court explained in Chapman v. Houston Welfare Rights Organization, 441 U.S. 600 (1979):

"§ 1443 applies only to rights that are granted in terms of equality and not to the whole gamut of constitutional rights....' When the removal statute speaks of "any law providing for equal rights, " it refers to those laws that are couched in terms of equality, such as the historic and the recent equal rights statutes [ i.e., the Reconstruction-era Civil Rights Acts and the Civil Rights Acts of the 1950s and 60s], as distinguished from laws, of which the due process clause and 42 U.S.C. § ...

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