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Lewis v. HSBC Bank USA, N.A.

United States District Court, D. Hawaii

August 25, 2017

PAUL W. LEWIS; CONNIE K. LEWIS, Plaintiffs,
v.
HSBC BANK USA, N.A.; MICHAEL JAMES MARTIN; COLLEEN ANN JERGENS; WELLS FARGO BANK, N.A.; DOE DEFENDANTS 1-50, Defendants.

          FINDINGS AND RECOMMENDATION TO GRANT PLAINTIFFS' MOTION FOR AN ORDER OF REMAND

          Kevin S.C. Chang, United States Magistrate Judge

         Before the Court is Plaintiffs Paul and Connie Lewis' (collectively “Plaintiffs”) Motion for an Order of Remand, filed June 22, 2017. Defendants Wells Fargo Bank N.A. (“Wells Fargo”), Michael James Martin (“Martin”), and Colleen Ann Jergens (“Jergens”) (collectively “Removing Defendants”) filed an Opposition on July 31, 2017, which Defendant HSBC Bank USA, N.A. (“HSBC”)[1] joined. On August 7, 2017, Plaintiffs filed a Reply.

         This matter came on for hearing on August 21, 2017. John Perkin, Esq., appeared on behalf of Plaintiffs; Summer Kaiawe, Esq., and Michael Bird, Esq., appeared on behalf of Removing Defendants; and Blaine Rogers, Esq., appeared on behalf of HSBC. After careful consideration of the parties' submissions, the record, the applicable law, and the arguments of counsel, the Court HEREBY RECOMMENDS that Plaintiffs' Motion be GRANTED for the reasons set forth below.

         BACKGROUND

         On February 8, 2017, Plaintiffs commenced this action against Defendants in the Circuit Court of the Fifth Circuit, State of Hawaii. Plaintiffs filed a First Amended Complaint (“FAC”) on February 15, 2017.

         Wells Fargo was served with the FAC on April 27, 2017. Martin and Jergens were served on May 7, 2017.

         On May 23, 2017, Defendants removed the action on the basis of diversity jurisdiction. Notice of Removal (“Notice”) at ¶ 10. Included in the Notice was the following averment:

Based upon a review of the public docket for the State Court Action accessed on Ho‘ohiki on May 24, 2017, [2] no return of service as to HSBC has been filed. Upon information and belief, it does not appear that HSBC has been served with the FAC. As a result, HSBC's consent to removal is not required.

Id. at ¶ 8.

         On June 22, 2017, Plaintiffs filed the instant Motion.

         On July 12, 2017, HSBC filed a Consent and Joinder in the Notice. In the Consent and Joinder, HSBC represented that its counsel informed removing defense counsel on June 26, 2017 that it consented to removal of the action.

         DISCUSSION

         Plaintiffs seek remand of this action to state court. They argue that the Notice is defective because HSBC failed to timely consent to and join in the removal, and the time for doing so has expired. Removing Defendants respond that HSBC's consent was not required because they were unaware that HSBC had been served when they removed this action, and that consent was timely given subsequent to removal. In addition, Removing Defendants contend that even if HSBC's consent was untimely, Plaintiffs have failed to establish prejudice.[3]

         I. Removal Was Procedurally Defective

         Removing Defendants removed the instant case on the basis of diversity of citizenship. Under 28 U.S.C. § 1441, a defendant may remove a civil action brought in a state court to federal district court if the district court has original jurisdiction. Abrego Abrego v. The Dow Chemical Co., 443 F.3d 676, 679-80 (9th Cir. 2006). “Removal . . . statutes are ‘strictly construed, ' and a ‘defendant seeking removal has the burden to establish that removal is proper and any doubt is resolved against removability.'” Hawaii ex rel. Louie v. HSBC Bank Nevada, N.A., 761 F.3d 1027, 1034 (9th Cir. 2014) (quoting Luther v. Countrywide Home Loans Serv. LP, 533 F.3d 1031, 1034 (9th Cir.2008)); Durham v. Lockheed Martin Corp., 445 F.3d 1247, 1252 (9th Cir. 2006); California ex rel. Lockyer v. Dynegy, Inc., 375 F.3d 831, 838 (9th Cir. 2004).

         There is a strong presumption against removal jurisdiction, which “means that the defendant always has the burden of establishing that removal is proper, ' and that the court resolves all ambiguity in favor of remand to state court.” Hunter v. Philip Morris USA, 582 F.3d 1039, 1042 (9th Cir. 2009) (quoting Gaus v. Miles, Inc., 980 F.2d 564, 566 (9th Cir. 1992) (per curiam)); California ex rel. Lockyer, 375 F.3d at 838 (“[T]he burden of establishing federal jurisdiction falls to the party invoking the statute.”); Durham, 445 F.3d at 1252 (Courts resolve any doubts about the propriety of removal in favor of remanding the case to state court). Courts should presume that a case lies outside the limited jurisdiction of the federal courts. Hunter, 582 F.3d at 1042.[4]

         Known as the rule of unanimity, 28 U.S.C. § 1446(b)(2)(A) requires “all defendants who have been properly joined and served [to] join in or consent to the removal of the action.” 28 U.S.C. § 1446(b)(2)(A); Destfino v. Reiswig, 630 F.3d 952, 956 (9th Cir. 2011) (citations omitted); Proctor v. Vishay Intertechnology Inc., 584 F.3d 1208, 1224 (9th Cir. 2009) (“In a case involving multiple defendants, ‘[a]ll defendants must join in a removal petition.'”) (citation omitted) (alteration in original). Excepted from this rule are nominal, fraudulently joined or unknown defendants, Emrich v. Touche Ross & Co., 846 F.2d 1190, 1193 n.1 (9th Cir. 1988); Abrego, 443 F.3d at 680 (citation omitted), and defendants that have not been properly served in the state court action. Salveson v. Western States Bankcard Ass'n, 731 F.2d 1423, 1429 (9th Cir. 1984), overruled on other grounds by Ethridge v. Harbor House Rest., 861 F.2d 1389 (9th Cir. 1988). A defendant's failure to join is fatal under § 1446. See Pressman v. Meridian Mortgage Co., 334 F.Supp.2d 1236, 1240-41 (D. Haw. 2004) (citing Hewitt v. City of Stanton, 798 F.2d 1230, 1232-33 (9th Cir. 1986)); Prize Frize, Inc. v. Matrix (U.S.) Inc., 167 F.3d 1261, 1266 (9th Cir. 1999), overruled on other grounds by Abrego, 443 F.3d at 670 (“[T]he failure to adhere to the unanimity rule is dispositive.”).

         If fewer than all defendants join in removal, the removing party has the burden, under § 1446(a), of affirmatively explaining the absence of the non-joining defendant(s) in the notice of removal. Prize Frize, 167 F.3d at 1266 (finding the removal notice insufficient where it stated that the defendants believed that many, rather than all, of the non-consenting defendants were not properly served). Insofar as HSBC was served on May 1, 2017, removing Defendants were required to obtain HSBC's consent prior to removing the action, and their failure to do so renders the Notice defective.

         A. Removing Defendants Failed to Obtain HSBC's Consent or Joinder in the Notice

         Removing Defendants argue that they were not required to obtain HSBC's consent because it was not a “[k]nown [p]roperly [s]erved and [j]oined [d]efendant at the [t]ime of [r]emoval, ” Opp'n at 7, as no proof of service was posted on Ho‘ohiki at the time of removal. Id., Decl. of Summer H. Kaiawe (“Kaiawe Decl.”), Ex. A (reflecting no proof of service for HSBC in the case document list on May 23, 2017). They further contend that they were reasonably diligent in their effort to ascertain whether HSBC had been served, and in any event, that they properly explained HSBC's absence in the Notice. Presently at issue is not whether they explained HSBC's absence, but whether, prior to removal, they exercised reasonable diligence in attempting to ascertain the status of service upon HSBC.

         1. Removing Defendants Failed to Exercise Reasonable Diligence

         To support their assertion of diligence, Removing Defendants submit that 1) they reviewed Ho‘ohiki on May 23, 2017, prior to filing the Notice, and no proofs of service were on the document list and 2) on May 17, 2017, they contacted David Rosen, Esq., who represented HSBC in another action, but Mr. Rosen was unaware of this action.[5] After considering the record before it, the Court is unpersuaded that Removing Defendants' efforts constitute reasonable diligence in this case.

         Conflicting authority exists regarding the extent of a removing defendant's duty to ascertain whether co-defendants have been served at the time the notice of removal is filed. However, many courts require the consent of served co-defendants, regardless of the filing of proofs of service, and they find that diligence is lacking when removing defendants merely check the state court record for proofs of service as to co-defendants. See, e.g., Barbera v. WMC Mortg. Corp., No. C 08-02677 SBA, 2009 WL 742843, at *2 (N.D. Cal. Mar. 18, 2009) (“[T]he obligation to join all defendants is based on whether the defendant actually has been served, not on the subjective knowledge of the removing party.”); Career Network, Inc. v. Wot Servs., Ltd., No.6:10-CV-1826-ORL-31, 2011 WL 397906, at *2 (M.D. Fla. Feb. 3, 2011) (holding that because service was effected prior to removal, a co-defendant's consent to the removal was required even though the proofs of service were not filed prior to removal); AGI Pub., Inc. v. HR Staffing, Inc., No. 1:12-CV-00879-AWI, 2012 WL 3260519, at *6 (E.D. Cal. Aug. 8, 2012) (finding a lack of diligence sufficient to excuse the removing defendant's failure to join its co-defendants where the removing defendant 1) had knowledge that one defendant had been served prior to removal and 2) checked the docket once, eight days prior to removal, but did not recheck or consult the state court clerk's office);[6] Orozco v. EquiFirst Corp., No. CVC08-8064PA(CWX), 2008 WL 5412364, at *1 (C.D. Cal. Dec. 22, 2008) (“A removing defendant must exercise due diligence to ascertain if other defendants have been served, and simply checking if a proof of service has been filed with the court is insufficient.”); Pianovski v. Laurel Motors, Inc., 924 F.Supp. 86, 87 (N.D. Ill. 1996) (deeming insufficient the removing defendant's phone call to the clerk and instruction to a docketing employee and explaining that the removing defendant should have taken the further step of attempting to contact the co-defendant to determine whether it had been served); Sasser v. Florida Pond Trucking, LLC, No. 1:16-CV-252-WKW-PWG, 2016 WL 3774125, at *6 (M.D. Ala. June 24, 2016), report and recommendation adopted, 2016 WL 3769754 (M.D. Ala. July 14, 2016) (concluding that the removing defendant's due diligence requires more than a mere check of state court records to see if proofs of service have been filed as to co-defendants); Beltran v. Monterey Cty., No. C 08-05194 JW, 2009 WL 585880, at *3 (N.D. Cal. Mar. 6, 2009) (finding a lack of due diligence where the removing defendant called the court clerk to determine if proofs of service had been filed as to co-defendants, was informed that no proof of service had been filed for certain co-defendants, but took no further steps to ascertain whether those co-defendants had been served); Parker v. Johnny Tart Enters., Inc., 104 F.Supp.2d 581, 585 (M.D. N.C. 1999) (rejecting the removing defendants' “reliance on their search for and the absence of a return of service for Defendant Blackstock in the state court records prior to the filing of Defendants' notice of removal” and finding that “there is no authority within the Fourth Circuit supporting the creation or application of an equitable exception to the thirty-day time limit of 28 U.S.C. § 1446(b) based on ‘exceptional circumstances.'”).

         Other courts allow removing defendants to rely on the state court docket for filed proofs of services. See, e.g., Lopez v. BNSF Ry. Co., 614 F.Supp.2d 1084, 1089 (E.D. Cal. 2007) (reasonable diligence found where the removing defendants checked the state court docket to ascertain whether co-defendants had been served prior to removal and concluding that the removing defendants did not have a duty to contact the plaintiffs' counsel to investigate whether service had been effected upon co- defendants); Laurie v. Nat'l R.R. Passenger Corp., No. CIV.A. 01-6145, 2001 WL 34377958, at *1 (E.D. Pa. Mar. 13, 2001) (“[T]he better rule is that is that a defendant is required to obtain consent only from those codefendants who it knew or should have known” had been served, in the exercise of reasonable diligence - i.e. repeatedly checking the docket, calling the office on more than one occasion to determine whether a proof of service had been filed); Milstead Supply Co. v. Cas. Ins. Co., 797 F.Supp. 569, 573 (W.D. Tex. 1992) (finding “that the exceptional circumstances of this case justify the following holding[:] . . . joinder in or consent to the removal petition must be accomplished by only those defendants: (1) who have been served; and, (2) whom the removing defendant(s) actually knew or should have known had been served. The second requirement encompasses the served defendants whom the removing defendant(s) actually knew had been served. This requirement also mandates that the removing defendant(s) obtain the consent or joinder of the other defendant(s) whom the removing defendant(s) should have been aware of because of the constructive notice of the filing of the return of service in the state court. The constructive notice element should only be applied to removing defendants who had a reasonable time to become aware of the filing of such service and had a reasonable time in which to obtain the consent or joinder of such other defendants.”).

         Removing Defendants rely on the foregoing three cases, all of which have applied a lack of constructive notice exception to the rule of unanimity. Williams v. Int'l Gun-A-Rama, 416 Fed.Appx. 97, 99 (2d Cir. 2011) (noting that Milstead Supply Co. v. Casualty Insurance Co. “carved out an exception to the general rule that co-defendants must consent to removal, ” and identifying Lopez v. BNSF Ry. Co. and Laurie v. Nat'l R.R. Passenger Corp. as cases applying the exception). The Court finds these cases to be inapplicable and/or unpersuasive, but even if they were controlling authority, they are distinguishable.

         The Lopez court found that the removing defendants “exercised reasonable diligence by checking the Kern County Superior Court docket to ascertain whether or not other named defendants had been served prior to filing their notice of removal.” Lopez, 614 F.Supp. 2d. at 1089. However, the removing defendants in Lopez also contacted legal counsel for Kern County, who was unaware of any service on the county. Id. Finally, the plaintiffs did not file proofs of service until the day the notice of removal was filed. Id. In distinguishing a case cited by the plaintiffs, Pianovski v. Laurel Motors, Inc., the court noted that there was no showing that the court clerk's office experienced delays accounted for in Pianovski.[7] Id. at 1089. Here, Removing Defendants did not contact HSBC or counsel for HSBC; the proof of service was filed the day prior to removal; and there was a delay between the filing of the proof of service and docketing on Ho‘ohiki.[8]

         In Laurie, the removing defendant not only checked the docket repeatedly, but also “called the Office of Prothonotary on more than one occasion to learn whether a proof of service had been filed but not yet docketed.” Laurie, 2001 WL 34377958, at *1. These actions, taken together, demonstrated reasonable diligence. Id. Removing Defendants could not satisfy Laurie's reasonable diligence standard ...


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