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Penny v. PNC Bank, N.A.

United States District Court, D. Hawaii

May 23, 2019

JOANNE ERMANDINE PENNY, et al., Plaintiffs,
PNC BANK, N.A., et al. Defendants. MICHAEL K. NAKATSU, et al., Plaintiffs,
PNC BANK, N.A., et al., Defendants.


          J. Michael Seabright Chief United States District Judge.


         The court faces nearly identical motions to remand these two cases, which were removed from the First Circuit Court of the State of Hawaii (“state court”) by Defendant PNC Bank, N.A. (“PNC Bank”).[1] The same counsel represent the primary parties in both cases, the motions were argued together, and the motions involve similar facts with the same issues of law. Thus, although the cases are not consolidated, the court issues this joint order to be filed in each case. The court heard Plaintiffs' Motions for Order of Remand on May 14, 2019. As explained to follow, the Motions are GRANTED in part, and the cases are REMANDED to the state court for lack of subject-matter jurisdiction. The court, however, DENIES Plaintiffs' requests for awards of attorneys' fees and costs.


         The Complaints in these cases are both based on allegations of wrongful foreclosure, asserting claims against PNC Bank and others for (1) wrongful deprivation of real property, (2) unfair and deceptive trade practices, and (3) quiet title. Plaintiffs allege that PNC Bank and its agents improperly conducted non-judicial foreclosures on mortgages that were in default, in violation of Hawaii law and “power of sale” clauses in the mortgages. The precise details of the alleged wrongful conduct are not germane for the present motions to remand, which concern questions of law regarding subject-matter jurisdiction. The court thus focuses on the specific background relevant to the jurisdictional issues.

         What's important for present purposes is that the foreclosures at issue were completed against properties as far back as 2009, after Plaintiffs defaulted on their mortgages, and the properties were subsequently purchased by buyers who encumbered the properties with mortgages held by current mortgagees (e.g., Nakatsu co-Defendants Territorial Savings Bank and First Hawaiian Bank). The Complaints name these current homeowners and mortgagees as Defendants for the quiet title counts, thus seeking (in addition to other remedies against PNC Bank) an award of title and ejectment of the current homeowners as possible relief for the allegedly wrongful foreclosures.

         For example, in Nakatsu, Plaintiffs allege as to the current owners, Defendants Russell and Deanna Oda:

81. Prior to accepting and recording the deed from HSBC Bank USA . . . Defendants Oda had constructive notice of the publicly recorded documents in their chain of title . . . and, further, had constructive notice if not actual notice that HSBC Bank USA . . . had acquired its putative title from PNC, PNC having purported to purchase the Property at its own foreclosure sale. They knew or reasonably should have known that there was a break in the chain of title since the last owner of record before PNC were the . . . Plaintiffs but there was no deed from the . . . Plaintiffs to PNC and their deed was from HSBC Bank USA . . . who had acquired the [Plaintiffs'] Property from PNC, meaning that they (Defendants Oda) knew their chain of title was only valid if the foreclosure was valid.

ECF No. 1-2 (Nakatsu) at PageID #40. The Nakatsu Complaint continues:

84. Because PNC failed to strictly comply with HRS §§ 667-5 et seq. (2008) and the power of sale in the Mortgage as set forth above, the non judicial foreclosure sale and transfer of the [Plaintiffs'] Property to HSBC Bank USA, . . . was void as a matter of law, or at least voidable, and hence all subsequent transfers were likewise void or at least voidable as to non-bona fide purchasers. Accordingly, Plaintiffs . . . are entitled to have the Property returned to them by Defendants Oda, and to have any claim of title or interest by the Defendants Oda, extinguished.
85. The [Plaintiffs'] interest in the Property is superior to that of Defendants Oda (and their assignees or mortgagees, if any) because all subsequent transfers after HSBC Bank USA['s] . . . void, or at least voidable, deed to itself are also void or at least voidable.

Id. at PageID #41. Similarly, as to the current mortgagees, it alleges:

91. For the same reasons as alleged against the Oda Defendants, Defendant Territorial Savings Bank, FSB and Defendant First Hawaiian Bank are not bona fide mortgagees for value because they were aware (or reasonably should have been aware) that they were accepting a mortgage on property that had been acquired by a bank at its own foreclosure sale and were on constructive notice of (or on inquiry notice to examine) the Foreclosure Affidavit which would have revealed the violations of the power of sale and the statute alleged above.

Id. at PageID #42.

         Both Complaints were filed in state court in December 2018 against PNC Bank and the current owners and mortgagees.[2] In January 2019, PNC Bank removed them to this court under 28 U.S.C. § 1441 based upon diversity of citizenship. On one side, the various Plaintiffs in both cases are citizens of Hawaii (or of California or Colorado), and, on the other side, PNC Bank is alleged to have a principal place of business in Pittsburgh, Pennsylvania, see ECF No. 1-2 at PageID #20 (Nakatsu).[3] The current owners and some of the mortgagees, however, are alleged to be citizens of Hawaii-the same citizenship as most of the Plaintiffs-thus destroying complete diversity of citizenship. See, e.g., Caterpillar Inc. v. Lewis, 519 U.S. 61, 68 (1996) (explaining that complete diversity of citizenship is required under 28 U.S.C. § 1332(a), which “applies only to cases in which the citizenship of each plaintiff is diverse from the citizenship of each defendant”). PNC Bank, however, removed the cases on a theory of “fraudulent joinder, ” asking the court to disregard the citizenship of the non-diverse defendants because, they argue, Plaintiffs “fail[] to state a cause of action against a resident defendant, and the failure is obvious according to settled rules of the state.” McCabe v. Gen. Foods Corp., 811 F.2d 1336, 1339 (9th Cir. 1987).

         Plaintiffs filed their Motions for Order of Remand in February 2019, seeking to remand the cases back to state court, arguing that the non-diverse defendants were not “fraudulently joined” and that the court lacks subject-matter jurisdiction because complete diversity of citizenship does not exist. The ultimate question therefore is whether to disregard the non-diverse defendants-if so, then the cases remain ...

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