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Bird v. Carteret Mortgage Corp.

March 22, 2007


The opinion of the court was delivered by: Judge Gregory L. Frost

Magistrate Judge Kemp


This case is before the Court to consider objections filed by defendant Carteret Mortgage Corporation to a Report and Recommendation issued by the Magistrate Judge on January 5, 2007. The recommendation to which Carteret objects is the remand of this case to the Court of Common Pleas of Franklin County, Ohio, from which court the case was removed. For the following reasons, and after a de novo review of the record, see Vogel v. U.S. Office Products, 258 F.3d 509 (6th Cir. 2001), the objections will be overruled and an order of remand will issue.

I. Background

Plaintiffs, both of whom are citizens of Ohio for purposes of the diversity statute, 28 U.S.C. §1332(a), filed this action in the Franklin County, Ohio, Court of Common Pleas. They asserted claims only under the Ohio Mortgage Broker Registration Act (OMBRA), O.R.C. §1322.07. One of the two defendants, Flagship Mortgage Corporation, is also an Ohio resident, so that on the face of the complaint, complete diversity (which is required for removal based on diversity jurisdiction, see Strawbridge v. Curtiss, 3. Cranch (7 U.S.) 267 (1806)) is lacking and the case is not one over which the Court can exercise jurisdiction. See 28 U.S.C. §1441(a)(only a "civil action ... of which the district courts of the United States have original jurisdiction" can be removed to the district court).

Despite this apparent lack of diversity jurisdiction, Carteret, which is not an Ohio resident, removed the case, relying on 28 U.S.C. §§1441(a) and 1441(b) and two judicially-crafted doctrines, which, if they apply, allow the Court to disregard either the claims asserted against the resident defendant or that defendant's presence in the action altogether. The two doctrines, which are intended to prevent a plaintiff from defeating an out-of-state defendant's ability to remove a case simply by joining completely frivolous claims against an in-state party, are referred to as the "fraudulent joinder" and the "fraudulent misjoinder" doctrines. The Magistrate Judge concluded that neither doctrine applies here, and he recommended that the case be remanded to state court. It is that recommendation to which Carteret objects.

II. Fraudulent Joinder

The case law relating to the fraudulent joinder doctrine is correctly set forth at pages 3-5 of the Report and Recommendation. Carteret does not argue that the legal standard used by the Magistrate Judge is incorrect. Rather, it contends that the Magistrate Judge erred in finding that the fraudulent joinder doctrine (which permits the Court to disregard only those state law claims which have no colorable chance of surviving a motion to dismiss were such a motion to be filed in the state court) is inapplicable to the plaintiffs' OMBRA claim against Flagship.

In characterizing the plaintiffs' claim against Flagship as completely frivolous, Carteret argues that the claim is barred by the applicable state statute of limitations. Carteret asserts that the claim, although pleaded under a statute (i.e. OMBRA), is really a fraud claim or some other type of tort claim. In Ohio, fraud claims and other tort claims must be filed within four years of the date that the cause of action accrued. O.R.C. §2305.09. Thus, Carteret contends that it is a virtual certainty that the OMBRA claim would be dismissed by the state court.

In reaching the opposite conclusion, the Magistrate Judge noted that the general statute of limitations in Ohio for liability created by statute is found in O.R.C. §2305.07 and is six years. Plaintiffs rely on that statute of limitations in seeking to preserve their claim. The Magistrate Judge did not decide which statute of limitations actually applies, since that determination should be made only by a court having jurisdiction to decide the merits of the case, but only that the plaintiffs could make a colorable argument that the six-year limitations period applies. The question raised by the objections is whether that determination is incorrect.

The Report and Recommendation notes that there is only one Ohio court decision on the question of whether liability under the OMBRA is governed by a four-year or a six-year statute of limitations. That decision, Carver v. Discount Funding Associates, 2004 WL 2827229 (Huron Co. Comm. Pleas, June 10, 2004), held that the longer six-year statute of limitations applies. Given that the issue is an unsettled one under Ohio law, and given that plaintiffs could argue that the Carver decision was correctly decided, the Magistrate Judge held that there is at least a colorable argument to be made that the claim against Flagship would survive a motion to dismiss.

Carteret devotes several pages of its memorandum to an argument that, under the legal principles laid out by the Ohio Supreme Court in McAuliffe v. Western States Import Co., 72 Ohio St. 3d 564 (1995), Carver was wrongly decided. According to Carteret, the correct approach to determining if a cause of action arising under a statute is governed by the four-year statutes of limitations applicable either to fraud or to tort actions is to determine if the liability is one which would exist independently of the statute in question. If so, the shorter limitations period applies even if the claim is expressly made pursuant to the statute. In other words, only statutory causes of action which did not exist at common law are governed by the longer limitations period set forth in O.R.C. §2305.07.

However meritorious this argument may be, the question the Court must answer under the fraudulent joinder doctrine is whether there is a plausible counter-argument available to the plaintiffs. As Judge Sargus of this Court observed in Shephard v. Allstate Ins. Co., 2006 WL 745588, *2 (S.D. Ohio March 17, 2006), when "Ohio law on the sufficiency of Plaintiffs' claims ... is not entirely clear," the better practice is to remand the case to state court so that the Ohio courts can decide the issue. See also Wiseman v. Universal Underwriters Ins. Co., 412 F.Supp. 2d 801 (S.D. Ohio 2005). An argument that the only decided case in Ohio favors the plaintiffs' position is ...

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