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Benko v. Quality Loan Serv. Corp.

United States Court of Appeals, Ninth Circuit

June 18, 2015

JEFFREY BENKO; CAMILO MARTINEZ; ANA MARTINEZ; FRANK SCINTA; JACQUELINE SCINTA; SUSAN HJORTH; SANDRA KUHN; JESUS GOMEZ; SILVIA GOMEZ; DONNA HERRERA; ANTOINETTE GILL; JESSE HENNIGAN; KIM MOORE; THOMAS MOORE, Nevada residents; RAYMOND SANSOTA; FRANCINE SANSOTA, Ohio residents, Plaintiffs-Appellants,
v.
QUALITY LOAN SERVICE CORPORATION, a California corporation; MTC FINANCIAL, INC., DBA Trustee Corps.; MERIDIAN FORECLOSURE SERVICE, DBA Meridian Trust Deed Service, DBA MTDS, Inc.; NATIONAL DEFAULT SERVICING CORPORATION; CALIFORNIA RECONVEYANCE COMPANY, Defendants-Appellees

Argued and Submitted, San Francisco, California March 13, 2015

Page 1112

[Copyrighted Material Omitted]

Page 1113

Appeal from the United States District Court for the District of Nevada. D.C. No. 2:12-CV-0024-MMD-GWF. Miranda Du, District Judge, Presiding.

SUMMARY [*]

Jurisdiction / Class Action Fairness Act

The panel reversed the district court's Fed.R.Civ.P. 12(b)(6) dismissal of a class action, vacated the district court's judgment, and remanded with instructions to the district court to remand the case to Nevada state court because there was no federal jurisdiction under the Class Action Fairness Act.

The panel held that the court lacked jurisdiction because Meridian Foreclosure Services, a Nevada corporation, was a " significant" defendant for purposes of CAFA's local controversy exception, 28 U.S.C. § 1332(d)(4)(A). The panel concluded that the plaintiffs met their burden to show that this case qualified for the local controversy exception where: a class of exclusively Nevada plaintiffs filed suit against six defendants, one of which was Nevada domiciled; the alleged misconduct took place exclusively in the state of Nevada; and the one Nevada domiciled defendant was allegedly responsible for between 15-20% of the wrongs alleged by the entire class.

The panel held that the district court abused its discretion in denying the plaintiffs leave to amend their complaint after removal to federal court, and erred in not considering the plaintiffs' second amended complaint for purposes of analyzing jurisdiction under CAFA.

Judge Wallace dissented from the majority's holding that plaintiffs should be permitted to amend the complaint after removal, and the majority's conclusion that the district court abused its discretion in denying plaintiffs leave to file the second amended complaint. Judge Wallace would hold that the district court, after properly limiting itself to considering only the allegations in the first amended complaint, did not err in concluding that plaintiffs failed to satisfy the requirements of CAFA's local controversy exception.

Nicholas A. Boylan (argued), Law Office of Nicholas A. Boylan, San Diego, California, for Plaintiffs-Appellants.

Lawrence G. Scarborough (argued), Jessica R. Maziarz, and Brian Cave LLP, Phoenix, Arizona; Kent F. Larsen and Katie M. Weber, Smith Larsen & Wixom, Las Vegas, Nevada, for Defendant-Appellee California Reconveyance Company.

Kristin A. Schuler-Hintz (argued) and Melissa Robbins Coutts, McCarthy & Holthus LLP, Las Vegas, Nevada, for Defendant-Appellee Quality Loan Service Corporation.

Richard J. Reynolds (argued) and Fabio R. Cabezas, Burke, Williams & Sorensen LLP, Santa Ana, California; Michael Sullivan, Robison, Belaustegui, Sharp & Low, Reno, Nevada, for Defendant-Appellee MTC Financial Inc.

Michael R. Brooks, I-Che Lai, and Arlene Casillas, Brooks Bauer LLP, Las Vegas, Nevada, for Defendant-Appellee Meridian Foreclosure Service.

Gregory L. Wilde and Kevin S. Soderstrom, Tiffany & Bosco P.A., Las Vegas, Nevada, for Defendant-Appellee National Default Servicing Corporation.

Before: J. Clifford Wallace, Milan D. Smith, Jr., and Paul J. Watford, Circuit Judges. WALLACE, Circuit Judge, dissenting.

OPINION

Page 1114

M. SMITH, Circuit Judge

In this diversity class action, Jeffrey Benko and several others (collectively the

Page 1115

Plaintiffs) sued the Defendant companies, alleging that they engaged in illegal debt collection practices in the course of carrying out non-judicial foreclosures. The Plaintiffs initially filed the action in the Eighth Judicial Court of the State of Nevada, but the Defendants removed the action to federal district court under the Class Action Fairness Act (CAFA), 28 U.S.C. § § 1332(d), 1453, 1711. The district court held that it had jurisdiction over the class action, but then dismissed the Plaintiffs' claims under Federal Rule of Civil Procedure 12(b)(6).

We reverse the district court, vacate the district court's judgment, and remand with instructions to the district court to remand this case to the Eighth Judicial District Court of Nevada for further proceedings. Because Meridian Foreclosure Services (Meridian), a Nevada corporation, is a " significant" defendant for purposes of CAFA's local controversy exception, 28 U.S.C. § 1332(d)(4)(A), we lack jurisdiction over this action. The district court abused its discretion in denying the Plaintiffs leave to amend their complaint and erred in not considering the Plaintiffs' Second Amended Complaint (SAC) for purposes of analyzing jurisdiction under CAFA.

FACTUAL AND PROCEDURAL BACKGROUND

I. Factual Background

The Plaintiff class members took out loans against Nevada real properties, and later defaulted on those loans. The Defendants, who served as trustees on the deeds of trust that were foreclosed, are Quality Loan Services Corporation, Appleton Properties, MTC Financial, Meridian, National Default Servicing Corporation, and California Reconveyance Company. Meridian is the only Defendant domiciled in Nevada.

To foreclose on real property secured debt by private sale, the Defendants were required by Nevada law to send the Plaintiffs a " Notice of Default and Election to Sell Under Deed of Trust." Among other things, the notices stated that a " breach of obligations . . . has occurred" and made a " demand for sale" as a result of the default.

In their SAC, the Plaintiffs alleged that, by virtue of foreclosing on Nevada real property utilizing a private sale, the Defendants engaged in " claim collection" under Nevada Revised Statutes (NRS) Section 649. The Plaintiffs argue that, since Nevada law requires that trustees be licensed, the Defendants' failure to register as " collection agencies," as defined in NRS Section 649.020, constituted a deceptive trade practice. The Plaintiffs also claim that the Defendants engaged in unjust enrichment, trespass, quiet title, and elder abuse.

II. Prior Proceedings

On December 19, 2011, the Plaintiffs filed this class action in the Eighth Judicial District Court of the State of Nevada. Shortly thereafter, Defendant Meridian removed the action to federal district court under CAFA. On April 12, 2012, the Plaintiffs attempted to amend their First Amended Complaint (FAC), adding information concerning the claims asserted against Meridian, an in-state Defendant.

The district court held that it had jurisdiction over the class action, but ultimately dismissed the Plaintiffs' FAC under Rule 12(b)(6) for failure to state a claim. The court held that the SAC did not alter the core allegations made in the FAC and denied the Plaintiffs leave to amend, holding that the amendments were futile.

This appeal ...


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