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Bird v. Carteret Mortgage Corp.

January 5, 2007

RICHARD BIRD, ET AL,, PLAINTIFFS,
v.
CARTERET MORTGAGE CORP., ET AL., DEFENDANTS.



The opinion of the court was delivered by: Judge Frost

REPORT AND RECOMMENDATION

This case was filed in the Franklin County Court of Common Pleas by Richard and Valerie Bird, both Ohio residents, against two named defendants. One, Carteret Mortgage Corporation, is an out-of-state corporation. The other, Flagship Mortgage Corporation, is a citizen of Ohio for diversity purposes. All of the claims asserted in the complaint arise under state law; more specifically, they arise under provisions of the Ohio Mortgage Broker Registration Act (OMBRA)found at O.R.C. §1322.07.

Carteret removed the case to this Court under 28 U.S.C. §1441(a). In its notice of removal, it acknowledged that complete diversity of citizenship was lacking, but asserted, alternatively, that the claim against Flagship should be ignored for diversity purposes because it is barred by the applicable statute of limitations and the claim was therefore fraudulently joined to plaintiffs' claims against Carteret for the purpose of defeating removal jurisdiction; or that Flagship itself was fraudulently joined as a defendant because the claims asserted against it are so unrelated to the claims against Carteret that the joinder of defendants was not proper under Ohio procedure and falls within the "fraudulent misjoinder" doctrine, allowing this Court to disregard Flagship's citizenship for jurisdictional purposes.

The Birds have moved to remand this case to state court. Carteret has opposed the motion. Flagship appears to take no position on the motion to remand, but argues that the claims against it must be dismissed for want of subject matter jurisdiction because both the Birds and Flagship are Ohio residents. For the following reasons, it will be recommended that the motion to remand be granted.

I.

The facts pertinent to the motion to remand can be easily summarized. The Birds allege that, through the unscrupulous actions of a Mr. Delacruz, who is not a party to this case, they were induced to purchase a number of properties in Franklin County at an inflated value. Carteret provided financing for some of the properties, and Flagship provided financing for others. The parties appear to agree that the two lenders did not work in concert and did not share in the financing of any particular piece of real estate. However, the Birds contend that both lenders violated O.R.C. §1322.07 by making false or misleading statements in the course of financing these transactions or by otherwise engaging in misdealing. The original complaint asserted a single cause of action against both defendants. The amended complaint, filed after removal, asserts two causes of action, one against each defendant, and contains slightly more detail concerning each defendant's allegedly wrongful conduct. However, the Birds continue to assert only state law claims, and only violations of the OMBRA. It is with this factual background in mind that the Court will analyze the question of whether the case was properly removed.

II.

The Court turns first to the argument that the doctrine of "fraudulent joinder" allows Flagship's Ohio citizenship to be disregarded for jurisdictional purposes. That doctrine, which is well-established in the law, permits the Court to exercise removal jurisdiction over a case if any claim in the case which would otherwise defeat such jurisdiction is so lacking in arguable merit that the only apparent purpose for pleading such a claim is to defeat federal jurisdiction.

A claim of "fraudulent joinder," while not necessarily implying actual fraudulent conduct on the plaintiff's part, does involve an assertion that the resident defendant was joined solely, and without any legal basis, for the purpose of defeating the other defendants' right to remove the case on diversity grounds. As one might suspect, the law relating to this aspect of removal jurisdiction is stringent and requires removing defendants to do more than simply articulate a basis for dismissal of the plaintiff's claims against the non-diverse defendant who has allegedly been fraudulently joined. As the Fifth Circuit has acknowledged, in cases which are uniformly followed by cases from this and other circuits, see, e.g., Alexander v. Electronic Data Systems Corp., 13 F.3d 940 (6th Cir. 1994), when a removing party alleges that a defendant has been fraudulently joined as a party to a case in order to defeat removal jurisdiction, that party faces an uphill struggle in persuading the Court that not only does the complaint fail to state a claim against the non-diverse defendant, but that there is not even a colorable argument that it does. See B., Inc. v. Miller Brewing Co., 663 F.2d 545 (5th Cir. 1981). When a colorable argument in support of the claim against the non-diverse defendant exists, although the defendant may ultimately succeed in having the claim dismissed by the state court, removal of the case is improper. In Miller Brewing, the court held as follows:

The burden of persuasion placed on those who cry 'fraudulent joinder' is indeed a heavy one. In order to establish that an in-state defendant has been fraudulently joined, the removing party must show either that there is no possibility that the plaintiff would be able to establish a cause of action against the in-state defendant in state court, or that there has been outright fraud in the plaintiff's pleading of jurisdictional facts.

Id. at 549. Under the Miller Brewing standard, the Court's inquiry is not whether the complaint states a claim, but whether "there remained a possibility of a valid claim being stated against the in-state defendants . . . ." If there is, "the case would be properly cognizable only in the state courts." Id. at 550.

In reaching that conclusion, the Miller Brewing court relied on two prior Fifth Circuit decisions, Bobby Jones Garden Apartments v. Suleski, 391 F.2d 172 (5th Cir. 1968) and Tedder v. F.M.C. Corp., 590 F.2d 115 (5th Cir. 1979). The Sixth Circuit Court of Appeals has cited both of these cases with approval as articulating the appropriate standard for evaluating a removing defendant's assertion that in-state defendants have been joined without a reasonable basis for asserting liability and that the joinder should be disregarded for purposes of determining diversity jurisdiction. See Alexander, 13 F.3d 940 (6th Cir. 1994).

District court cases within this circuit have also followed the Miller Brewing rule, either exactly as stated or in a modified form which focuses not on the existence or non-existence of a claim against the non-diverse defendants, but on whether there is an articulable or reasonable basis for that claim. See Brusseau v. Electronic Data Systems Corp., 694 F.Supp. 331, 333-334 (E.D. Mich. 1988); Bucksnort Oil Co. v. Nat'l Convenience Stores, Inc., 585 F.Supp. 883, 886 (M.D. Tenn. 1984). Thus, in deciding whether diversity jurisdiction exists here, the Court's task is limited to determining whether the complaint states any claim against the resident defendant that is even arguably permitted under state law.

Here, Carteret does not argue that the facts as pleaded fail to state a cognizable claim against Flagship under the OMBRA. Rather, it argues that the claim is really a fraud claim and is therefore barred by the ...


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