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Anderson v. Lehman Brothers Bank, FSB

United States Court of Appeals, Tenth Circuit

June 17, 2013

WAYNE ANDERSON; KIMBERLY ANDERSON, Plaintiffs-Appellants,
v.
LEHMAN BROTHERS BANK, FSB; AURORA LOAN SERVICES, LLC; JAMES H. WOODALL, Trustee; MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, Defendants-Appellees.

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

Before LUCERO, ANDERSON, and BALDOCK, Circuit Judges.

ORDER AND JUDGMENT [*]

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.

BACKGROUND

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.

ANALYSIS

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. ยง 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 ...


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