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Schnute v. PNC Bank, N.A.

United States District Court, D. Hawaii

July 16, 2019



          Susan Oki Mollway United States District Judge.


         Plaintiffs William C. Schnute, Man-Na Nancy Kuo, Kenneth Shim, Nancy Lee O'Keefe, and John Paul O'Keefe (collectively, “Plaintiffs”) owned real property on the Big Island. They defaulted on their mortgage loans, and their lender, Defendant PNC Bank, N.A. (“PNC”), commenced nonjudicial foreclosure proceedings. Following completion of the foreclosures, Plaintiffs sued PNC in state court, asserting that PNC wrongfully foreclosed, and that PNC committed unfair and deceptive trade practices and unfair methods of competition. ECF No. 1-3, PageID #s 89-105.

         Plaintiffs also asserted a third claim of quiet title and ejectment against the subsequent purchasers of the properties and their lienholders: Defendants Michael Alan Torre, Mechelle Antoinette Torre, Moani Akana, and Kevin K. Medeiros (collectively, “Individual Defendants”), as well as Defendants Mortgage Electronic Registration Systems Inc. (“MERS”) and Homestreet Bank. See Id. at 105-13. The court refers to the parties sued under the quiet title and ejectment claim collectively as the “Count III Defendants.”

         Although Plaintiffs and the Individual Defendants are citizens of Hawaii and California, meaning that complete diversity is lacking, PNC removed the case to this court, arguing that the Count III Defendants were fraudulently joined because Plaintiffs may not assert a quiet title and ejectment claim against bona fide purchasers of the properties. ECF No. 1. Plaintiffs seek a remand of the case. ECF No. 13. The Magistrate Judge issued his Findings & Recommendations (“F&R”), concluding that the Count III Defendants were fraudulently joined and recommending that, given the existence of diversity if the Individual Defendants are disregarded, this court deny Plaintiffs' motion to remand. ECF No. 28. Plaintiffs now object to the F&R. ECF No. 29.

         Having reviewed the F&R in light of Plaintiffs' objections, this court concludes that PNC has not established under settled Hawaii law that the Count III Defendants were fraudulently joined. A state court could possibly determine that Plaintiffs may proceed against the Count III Defendants. As a result, this court grants Plaintiffs' motion to remand this case to state court.

         II. BACKGROUND.

         For the purposes of this order, the court adopts the F&R's background section as setting forth the relevant facts. Neither party has raised any objection related to that section. The F&R's background section states:

The Court recites only those background facts necessary for disposition of the current Motion. Plaintiffs obtained mortgages from Defendant PNC or its predecessor, which were secured by three properties located in Hawaii. ECF No. 1-3 ¶¶ 27-34. Defendant PNC commenced non-judicial foreclosure proceedings against the three properties pursuant to the power of sale provision in the mortgage agreements at issue. Id. ¶ 35. For purposes of this Motion, the Court refers to the three properties at issue based on the Plaintiffs that are associated with each property: the Schnute/Kuo Property, the Shim Property[1], and the O'Keefe Property. []
Following the non-judicial foreclosure, the Schnute/Kuo Property was transferred from Defendant PNC to itself by quitclaim deed and then transferred to [the Torres] by special warranty apartment deed. Id. ¶¶ 79- 80. The Shim Property was transferred from Defendant PNC to itself by quitclaim deed and then transferred to [Akana and Medeiros] by limited warranty deed. Id. ¶¶ 97-98. [Akana and Medeiros] have a mortgage on the Shim Property with Defendant MERS as nominee for Defendant Homestreet Bank. Id. ¶ 107. Plaintiffs do not assert a quiet title and ejectment claim regarding the O'Keefe Property. However, it appears that Plaintiffs may assert such a claim in the future after they receive “appellate clarification” regarding the applicable statute of limitations. Id. at 21 n.1.
Plaintiffs' First Amended Complaint asserts two claims against Defendant PNC: violations of state law governing non-judicial residential foreclosures (Count I); and violations of Hawaii Revised Statutes Chapter 480 for unfair and deceptive trade practices related to the non-judicial foreclosures (Count II). ECF No. 1-3. Plaintiffs also assert a claim for quiet title and ejectment against the Individual Defendants and Defendants Homestreet Bank and MERS (Count III). Id.
Defendant PNC removed this action on January 16, 2019. ECF No. 1. In the present Motion, Plaintiffs argue that remand is appropriate because the Court lacks subject matter jurisdiction. Specifically, Plaintiffs contend that complete diversity is lacking because Plaintiffs and the Individual Defendants are citizens of the same states. Defendant PNC argues that the Individual Defendants, Defendant Homestreet Bank, and Defendant MERS were fraudulently joined as sham defendants to defeat jurisdiction and, therefore, jurisdiction is proper in federal court.

ECF No. 28, PageID #s 568-70.


         A. Review of Magistrate Judge's Findings and Recommendations.

         Congress has empowered magistrate judges, upon referral of dispositive pretrial motions by district judges, to conduct hearings and issue findings and recommendations regarding dispositive pretrial motions. See 28 U.S.C. § 636(b)(1)(B); see also Fed. R. Civ. P. 72(b) (promulgating rule).

         A district judge reviews a magistrate judge's findings and recommendations prior to ruling on the motion, and may accept, reject, or modify, in whole or in part, the findings and recommendations made by the magistrate judge. Fed.R.Civ.P. 72(b). If a party timely objects to portions of the findings and recommendations, the district judge reviews those portions of the findings and recommendations de novo. Fed.R.Civ.P. 72(b)(3); Local Rule 74.2. The district judge may consider the record developed before the magistrate judge. Local Rule 74.2. The district judge also has discretion to receive further evidence. 28 U.S.C. § 636(b)(1); Fed.R.Civ.P. 72(b)(3); Local Rule 74.2; see also United States v. Raddatz, 447 U.S. 667, 676 (1980) (explaining that a district judge has wide discretion in deciding whether to allow new evidence). The de novo standard requires the district court to consider a matter anew and arrive at its own independent conclusions, but a de novo hearing is not ordinarily required. See United States v. Remsing, 874 F.2d 614, 617 (9th Cir. 1989); United States v. Boulware, 350 F.Supp.2d 837, 841 (D. Haw. 2004); Local Rule 74.2.

         The district judge may accept the portions of the findings and recommendations to which the parties have not objected as long as it is satisfied that there is no clear error on the face of the record. See United States v. Bright, Civ. No. 07-00311 ACK/KSC, 2009 WL 5064355, at *3 (D. Haw. Dec. 23, 2009); Stow v. Murashige, 288 F.Supp.2d 1122, 1127 (D. Haw. 2003); Fed.R.Civ.P. 72(b) advisory committee's note.

         B. Removal Jurisdiction.

         Plaintiffs filed this case in state court, and PNC removed to this court shortly thereafter. 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. Hunter v. Philip Morris USA, 582 F.3d 1039, 1042 (9th Cir. 2009). This means that a defendant may remove an action based on federal question jurisdiction or diversity jurisdiction. Id. The removal statute is strictly construed against removal. Provincial Gov't of Marinduque v. Placer Dome, Inc., 582 F.3d 1083, 1087 (9th Cir. 2009). “The ‘strong presumption' against removal jurisdiction 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, 582 F.3d at 1042 (quoting Gaus v. Miles, Inc., 980 F.2d 564, 566 (9th Cir. 1992) (per curiam)).

         C. Diversity Jurisdiction.

         PNC asserts diversity jurisdiction as the basis for removal. Diversity jurisdiction exists when the amount in controversy exceeds $75, 000, exclusive of interest and costs, and the matter in controversy is between citizens of different states. 28 U.S.C. § 1332(a)(1). Complete diversity of citizenship requires that “each defendant must be a citizen of a different state from each plaintiff.” In re Digimarc Corp. Derivative Litig., 549 F.3d 1223, 1234 (9th Cir. 2008). Removal based on diversity jurisdiction is not allowed “if any of the parties in interest properly joined and served as defendants is a citizen of the State in which such action is brought.” 28 U.S.C. § 1441(b)(2). In other words, “[d]efendants may remove an action on the basis of diversity of citizenship if there is complete diversity between all named plaintiffs and all named defendants, and no defendant is a citizen of the forum State.” Lincoln Prop. Co. v. Roche, 546 U.S. 81, 84 (2005).

         The parties acknowledge that complete diversity exists between Plaintiffs and PNC. The First Amended Complaint (“Complaint”) alleges that some Plaintiffs (Schnute and Kuo) and Individual Defendants (the Torres) are residents of California and that the remaining Plaintiffs (Shim and the O'Keefes) and Individual Defendants (Akana and Medeiros) are residents of Hawaii. ECF No. 1-3, PageID # ...

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