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Caruso v. PNC Bank

United States District Court, D. Utah

March 29, 2019

KEVIN J. CARUSO and MERRIDEE HANSEN FARR, Plaintiffs,
v.
PNC BANK, N.A. a national banking association, successor-in-interest to National City Bank, Rose Corporations I-X, John Does 1-10; Defendants. PNC BANK, N.A. Counterclaimant,
v.
KEVIN J. CARUSO and MERRIDEE HANSEN FARR, Counterclaim-Defendants . KEVIN J. CARUSO and MERRIDEE HANSEN FARR, Third-Party Plaintiffs
v.
KIM R. JENSEN, an individual, FIRST AMERICAN TITLE INSURANCE AGENCY, LLC, a Utah limited liability company, and SELECT PORTFOLIO SERVICING, INC., as servicer or successor in interest to FRONTIER BANK, FSB Fed.R.Civ.P. 19a Indispensable Party

          MEMORANDUM DECISION AND ORDER GRANTING PLAINTIFFS' [49] MOTION TO REMAND

          DAVID NUFFER UNITED STATES DISTRICT JUDGE.

         Plaintiffs Kevin J. Caruso and Merridee Hansen Farr (collectively “Plaintiffs”) filed the Motion to Remand (the “Motion”), [1] seeking to remand this case back to the Utah Fifth District Court for Washington County, Utah. Plaintiffs argue that the third party defendants named in Plaintiffs' Third Party Complaint[2] (which they pleaded due to a counterclaim against them) are nondiverse and destroy diversity jurisdiction. PNC Bank, N.A. (“PNC”) opposed, [3] the removal as does Third Party Defendant First American Title Insurance Agency (“First American”).[4]Plaintiffs replied in support.[5]

         As it was evident that Plaintiffs' addition of nondiverse parties might affect jurisdiction over this lawsuit, additional briefing was ordered, specifically to address factors used by other federal courts to resolve these sorts of issues.[6] The parties complied and provided briefing.[7]

         Because Plaintiffs have added a nondiverse party as a Third Party Defendant in response to PNC's counterclaims, remand is appropriate under 28 U.S.C.A. 1447(e). The Motion is Granted.

         Contents

         BACKGROUND ............................................................................................................................ 3

         DISCUSSION ................................................................................................................................. 5

         The Question of Remand Can Only Be Decided on the Basis of One of the Third Party

         Defendants .............................................................................................................. 5

         Remand is Appropriate Under the Hensgens Factors ......................................................... 6

         ORDER ......................................................................................................................................... 11

         BACKGROUND

         Plaintiffs originally filed their Complaint in the Utah Fifth Judicial District Court for Washington County on September 26, 2017.[8] Plaintiffs' Complaint contained one cause of action for quiet title against PNC and another for damages.[9] As alleged in the Complaint, Plaintiffs purchased a home (the “Property”) at a public auction in June, 2017 for $355, 000.[10] According to the Complaint and PNC's Answer and Counterclaim, [11] the Property was used as collateral for a No. of loans, which created the issues in this case.

         In 2005, Mr. Kim R. Jensen (“Jensen”) used the Property as collateral to obtain a $400, 000 line of credit loan with PNC's predecessor in interest, National City Bank (the “Line of Credit”).[12] A deed of trust on the Property was executed in favor of National City Bank.[13] In 2008, Mr. Jensen obtained a refinancing loan from Frontier Bank FSB for $1, 956, 500.00 (the “Refinancing Loan”).[14] The proceeds of the Refinancing Loan were intended to be used to pay off, among other things, the Line of Credit.[15] Payment in full on the Line of Credit's balance was sent to National City Bank.[16] The payment was purportedly accompanied by a letter of authorization from Mr. Jensen that directed National City Bank to close the Line of Credit.[17]

         Despite crediting the payment, National City Bank did not close the Line of Credit, nor did National City Bank reconvey the deed of trust.[18] A few months after sending the payment, Jensen began drawing on the Line of Credit again.[19] The balance owing on the Line of Credit, including interest and charges as of the filing of PNC's Counterclaim is $350, 864.68.[20]

         In 2012, Jensen borrowed $300, 000 from American United Family of Credit Unions (“AUFCU”). This loan was also secured by a trust deed against the Property.[21] Mr. Jensen defaulted on this loan and a notice of default was recorded on January 25, 2017.[22] The Property was purchased by Plaintiffs at trustee's sale under the AUFCU trust deed on June 8, 2017.[23]

         After discovering PNC's interest in the Property (as the successor in interest to National City Bank), Plaintiffs filed the Complaint in State Court. PNC removed the Complaint to the United States District Court for the District of Utah on October 30, 2017.[24] PNC's removal asserted diversity as a basis for federal jurisdiction.[25] On April 5, 2018, PNC filed an answer, which included three counter claims for relief against Plaintiffs.[26]

         On May 10, 2018 Plaintiffs answered the counterclaims.[27] Based on PNC's allegations, Plaintiffs' answer also included a third party complaint which named one individual and two entities: (1) Kim R. Jensen, (2), First American Title Company (the entity allegedly responsible for sending Jensen's payoff of Line of Credit to National City Bank), and (3) Select Portfolio Servicing, Inc. (“Select”) (the entity that is allegedly the current beneficiary of the trust deed executed as part of the Refinancing Loan.)[28]

         DISCUSSION

         The Question of Remand Can Only Be Decided on the Basis of One of the Third Party Defendants

         Before addressing the question of remand, certain issues with Plaintiffs' Third Party Complaint must be acknowledged. Plaintiffs allege in the Third Party Complaint-which is central to their argument for remand-that none of the named third party defendants are diverse: Kim R. Jensen is alleged to be a citizen of Utah; Select Portfolio Services is alleged to be a Utah corporation with its principal place of business in Utah; and First American Title Company is alleged to be a Utah limited liability company. However, PNC asserted in its Opposition that First American Title Company is a California entity and provided proof that First American Title Company was served in California.[29] Plaintiffs conceded in their Reply that First American Title Company is a diverse third party defendant.[30] First American Title Company is therefore diverse and the Motion cannot be granted on the basis of First American Title's Company's presence in this lawsuit.

         It must also be noted that Plaintiffs' Third Party Complaint and their briefing does not make it clear how Select is aligned in this lawsuit. Although Plaintiffs' indicate in their caption that they are bringing a Third Party Complaint against Select, suggesting that Select is a third party under the terms of Fed.R.Civ.P. 14, the body of the Third Party Complaint alleges that Select is “believed to be an indispensable party under Fed.R.Civ.P. 19(a)(1)(B).”[31] Based on allegations across Plaintiffs' Complaint and PNC's Counterclaim, it is clear that, as the successor in interest to the refinancing loan, Select may well have an interest in the Property. It would seem then that Select would need to be joined under Fed.R.Civ.P. 19 as another defendant on Plaintiffs' Quiet Title claim. But Plaintiffs do not articulate a claim against Select. Instead, Plaintiffs argue in their first claim for relief that Select must “be required to answer PNC's . . . counterclaim[, ]”[32] which suggests that Select is to be joined as counterclaim defendant alongside Plaintiffs.

         Confusion aside, while parties are permitted to assert claims against third parties when answering a claims in a lawsuit under Fed.R.Civ.P. 14, [33] if a party seeks to join a “required” or “indispensable” party under Fed.R.Civ.P. 19 a motion for a court order is required.[34] Plaintiffs filed no such motion here and Select therefore is not yet in this lawsuit. And it appears that Select will not be a party to the lawsuit as Plaintiffs have also moved to amend their answer to PNC's counterclaim and name another party in place of Select.[35] Nevertheless, as the following analysis demonstrates, it is Jensen's presence in the lawsuit that warrants remanding this case back to state court.

         Remand is Appropriate Under the Hensgens Factors

         “[S]ince the courts of the United States are courts of limited jurisdiction[, ]” there is a presumption against the existence of federal jurisdiction.[36] Because the Federal Rules of Civil Procedure permit a defendant to bring in third parties to a lawsuit, a plaintiff is also permitted bring in a third party to the lawsuit “[w]hen a claim is asserted against [the] plaintiff.”[37] The addition of third parties, however, can implicate jurisdictional issues when federal jurisdiction over a case is based on diversity. When these situations arise, the applicable statutes must be examined closely.[38]

         28 U.S.C.A. § 1367 provides that “[i]n any civil action of which the district courts have original jurisdiction founded solely on [the diversity jurisdiction provisions of] section 1332 of this title, the district courts shall not have supplemental jurisdiction . . . over claims by plaintiffs against persons made parties under Rule 14.”[39] This limitation in §1367 is a sensible limitation on plaintiffs and the choice to file in federal court. As the legislative history establishes:

In diversity-only actions the district courts may not hear plaintiffs' supplemental claims when exercising supplemental jurisdiction would encourage plaintiffs to evade the jurisdictional requirement of 28 U.S.C. S 1332 by the simple expedient of naming initially only those defendants whose joinder satisfies section 1332's requirements and later adding claims not within original federal jurisdiction against other defendants who have intervened or been joined on a supplemental basis.[40]

         In instances where a plaintiff originally chose to file a lawsuit in state court, a defendant removed the lawsuit to federal court, and then plaintiff sought to add a nondiverse party, 28 U.S.C.A. § 1477 establishes that the federal court may choose to do one of two things: “[i]f after removal the plaintiff seeks to join additional defendants whose joinder would destroy subject matter ...


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