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Anderson v. Lehman Brothers Bank, FSB

United States Court of Appeals, Tenth Circuit

June 17, 2013


(D.C. No. 2:11-CV-00584-TS) (D. Utah)

Before LUCERO, ANDERSON, and BALDOCK, Circuit Judges.


Stephen H. Anderson Circuit Judge.

Plaintiffs Wayne Anderson and Kimberly Anderson filed this action in Utah state court, seeking to halt a foreclosure and/or to hold the foreclosing parties liable for damages. The defendants removed the action to federal court on the basis of diversity jurisdiction. Although one of the defendants, trustee James H. Woodall, is a resident of Utah, we agree with the district court that his citizenship could be disregarded because he was fraudulently joined as a defendant and/or was at best a nominal party to the action. Having properly removed the case to federal court, however, the district court should have dismissed Woodall without prejudice for lack of jurisdiction. We therefore remand with instructions to modify the dismissal on the merits of the claim against Woodall to a dismissal without prejudice.


The Andersons executed a deed of trust to secure the payment of a promissory note. In the deed of trust, the Andersons were identified as borrowers, Lehman Brothers Bank, FSB (Lehman Brothers) as "lender, " Southern Utah Title as "trustee, " and Mortgage Electronic Registration Systems (MERS) as the nominee for lender's successors and assigns, and as beneficiary.

MERS later appointed defendant James H. Woodall, a Utah resident, as successor trustee. Mr. Woodall recorded a notice of default. MERS assigned Lehman Brothers' interest in the deed of trust to defendant Aurora Loan Services LLC.

The Andersons then filed suit in state court, asserting two causes of action: "quiet title and declaratory judgment pursuant to Utah Code Ann. § 57-1-23.5 and the Uniform Commercial Code." Aplt. App. at 10. The defendants removed the suit to federal court, where they filed a motion to dismiss.

The Andersons voluntarily dismissed their quiet title cause of action and the declaratory cause of action to the extent it was based on a "show me the note" theory. This left only their § 57-1-23.5 claim, based on a Utah statute providing that "[a]n unauthorized person who conducts an unauthorized [trustee's] sale is liable to the trustor for actual damages suffered by the trustor as a result of the unauthorized sale or $2, 000, whichever is greater." Utah Code Ann. § 57-1-23.5(2)(a).

The Andersons filed a motion to remand the case to state court. The district court denied the motion to remand and dismissed the remaining claim against Mr. Woodall on the merits. It dismissed because it concluded that § 57-1-23.5, which was enacted after Mr. Woodall filed his notice of default, could not be applied retroactively to Mr. Woodall's conduct.


1. Motion to Remand

A defendant may remove a civil action brought in state court to federal court if "the district courts of the United States have original jurisdiction" over the action. 28 U.S.C. § 1441(a). This court reviews de novo whether a case was removable to federal court. Frederick v. Hartford Underwriters Ins. Co., 683 F.3d 1242, 1245 (10th Cir. 2012). There is a presumption against removal jurisdiction, Laughlin v. Kmart Corp., 50 F.3d 871, 873 (10th Cir. 1995), and the party seeking removal has the burden of proof to establish jurisdiction, Martin v. Franklin Capital Corp., 251 F.3d 1284, 1290 (10th Cir. 2001).

Diversity jurisdiction, the basis for removal here, exists when the amount-in-controversy requirement is met and the parties are completely diverse. See 28 U.S.C. § 1332(a). Both the Andersons and Woodall are citizens of Utah and are therefore non-diverse. But the district court cited two reasons for disregarding Woodall in its diversity analysis: (1) he had been fraudulently joined, and (2) as trustee under a deed of trust, he was only a "nominal party."

Fraudulent joinder need not involve actual fraud in the technical sense. Instead, it can occur when the plaintiff joins a "resident defendant against whom no cause of action is stated" in order to prevent removal under a federal court's diversity jurisdiction. Dodd v. Fawcett Pubs., Inc., 329 F.2d 82, 85 (10th Cir. 1964). When this occurs, the district court disregards the fraudulently joined non-diverse party for removal purposes. In addition, "the 'citizens' upon whose diversity a plaintiff grounds jurisdiction must be real and substantial parties to the controversy. Thus, a federal court must disregard nominal or formal parties and rest jurisdiction only upon the citizenship of real parties to the controversy." Lenon v. St. Paul Mercury Ins. Co., 136 F.3d 1365, 1369 (10th Cir. 1998) (internal quotation marks omitted).

We ordered the parties to brief the issue of whether the district court properly determined that Woodall had been fraudulently joined and/or was only a nominal party to this dispute. In their supplemental brief, the Andersons essentially conceded that Woodall was not a viable party to their complaint, [1] and requested that this case be remanded to the district court for dismissal. Based on the district court's uncontested analysis, we agree that the complaint fails to state a colorable cause of action against Woodall. We therefore conclude that the case was properly removed to federal court notwithstanding Woodall's Utah citizenship.

Once it determined that Woodall had been fraudulently joined, however, the district court lacked jurisdiction to enter judgment on the merits on the claims against him. Rather, it was required to dismiss him from the case without prejudice. See, e.g., Albert v. Smith's Food & Drug Ctrs., Inc., 356 F.3d 1242, 1249 (10th Cir. 2004).[2] We must therefore vacate the district court's dismissal on the merits of the Andersons' complaint against Woodall, and remand with instructions to modify the dismissal to one "without prejudice" for lack of jurisdiction.[3]


We vacate the district court's dismissal on the merits of the claim against Woodall, and remand with instructions to enter a dismissal without prejudice for lack of jurisdiction.

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