Hernandez v. Specialized Loan Servicing, LLC

Background

Ramon and Blanca Hernandez took out two mortgages on their property in San Leandro, California, in November 2006. The plaintiffs alleged that, after a loan servicer sent them several payment demands, they paid approximately $85,000 and later paid another $49,275.79. They claimed that these payments were supposed to resolve or cure the loan problems but that the servicer later continued to demand payment.

The plaintiffs filed suit in the Superior Court of the State of California, County of Alameda, against Specialized Loan Servicing, LLC (SLS), MEB REO Trust VI (the Trust), and CTC Real Estate Services (CTC). SLS and the Trust removed the case to federal court based on diversity jurisdiction, which generally requires every plaintiff to have different citizenship from every defendant. They also moved to dismiss the complaint.

Remand ruling

The plaintiffs moved to remand, meaning to return the case to state court. They argued that CTC was a properly named and served defendant, that CTC was a California citizen like the plaintiffs, and that CTC had not joined or consented to removal within the required period.

The court agreed. It found that the plaintiffs properly served CTC through CT Corporation Systems, which had been CTC’s registered agent when CTC dissolved. The court also found that the plaintiffs intended to sue CTC and had not admitted that they named the wrong entity. The court concluded that CTC’s citizenship therefore had to be considered, resulting in a lack of complete diversity and federal subject-matter jurisdiction.

The court separately held that CTC’s failure to join or consent to removal also made removal improper. CTC had been properly named and served before removal but did not join or consent to the removal within 30 days.

The defendants argued in their opposition to remand that CTC had been fraudulently joined. Fraudulent joinder is a rule that can allow a federal court to ignore a nondiverse defendant when there is no possible state-law claim against that defendant. The court held that the defendants raised this justification too late because it was not included in their removal notice. The court nevertheless addressed the argument and rejected it, finding that the plaintiffs’ collective allegations presented at least a possibility that a state court could find a claim against CTC.

The court also rejected the argument that CTC was merely a nominal party whose citizenship could be ignored. The documents suggested that CTC may have retained powers and duties as trustee until August 5, 2022, and the plaintiffs sought money damages against all named defendants. The court therefore concluded that CTC was not shown to be only a nominal party.

Attorney fees and disposition

The court denied the plaintiffs’ request for attorney fees and costs related to removal. It found that the defendants had an objectively reasonable basis for seeking removal, even though the court rejected their arguments concerning CTC.

The court granted the plaintiffs’ motion to remand, denied as moot the defendants’ motion to dismiss, denied the plaintiffs’ request for attorney fees, and remanded the action to the Superior Court of the State of California, County of Alameda.