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Jacqueline D. Mcclendon v. Challenge Financial Investors Corporation

November 3, 2011


The opinion of the court was delivered by: Judge Dan Aaron Polster


Before the Court are two fully briefed motions:

* Plaintiff's Motion to Remand to State Court ("Remand Motion" or "Plaintiff's Motion") (Doc #: 12), and * Motion to Dismiss The Second Amended Complaint filed by Defendant Hartford Fire Insurance Co. ("Hartford") and joined by Defendant Travelers Casualty & Surety Co. of America ("Travelers") ("Motion to Dismiss" or "Defendants' Motion") (Respectively, Doc ##: 11, 24).

Because, as will be shown below, the Court concludes that it lacked original federal subject matter jurisdiction over this case at the time of removal, the Court GRANTS Plaintiff's Motion and directs the Clerk of Court to REMAND the case to state court. Accordingly, Defendants' Motion to Dismiss remains pending.


A review of the record reveals the following facts. This case was originally filed as a pro se action by Plaintiff Jacqueline D. McClendon in The Common Pleas Court for Lorain County, Ohio, on November 2, 2007. It was prosecuted by McClendon and her then-husband, Darrel McClendon, for several years with several iterations against several groups of defendants. Although not a lawyer, Darrel first purported to serve as counsel for his then-wife. When it was pointed out that he was engaged in the unauthorized practice of law, he added himself as a named plaintiff. Darrel later asked to be severed from the case as a result of divorce proceedings, which request the court granted. This case has proceeded without him.

On May 12, 2009, Attorneys Thomas R. Theado, Jack Malicki and James Konchan entered an appearance on McClendon's behalf.

More than two years later, on June 27, 2011, McClendon's legal team filed a second amended class-action complaint. (Doc #: 1-1 ("Second Am. Comp.").) The only defendant who has remained a defendant throughout the various iterations of this case is Challenge Financial Investors Corp. ("Challenge"). In addition to Challenge, the Second Amended Complaint added as defendants Hartford Fire Insurance Co. ("Hartford"), Travelers Casualty and Surety Company of America ("Travelers"), and the Ohio Superintendent of Financial Institutions ("Ohio Superintendent"). (Id.) Challenge is a defunct mortgage broker; Hartford and Travelers are the bonding companies from which Challenge obtained its mortgage-broker surety bonds; and the Ohio Superintendent is a titular obligee on Challenge's bonds. (Id. at 4.)

As reflected in the original complaint, McClendon alleges that, in June 2007, Challenge served as her mortgage broker in connection with a $40,000 loan transaction secured by her property located at 14206 South Marks Road, Columbia Station, Ohio. By admission in a written plea agreement, McClendon used this address to maintain and operate a drug house in which she packaged heroin purchased in bulk from a Cleveland supplier, and from which she sold the heroin to a large number of customers. (Case No. 1:07CR214; Doc #: 35.) The Government imposed, and McClendon agreed to pay, $40,000 in criminal forfeiture representing the proceeds of her criminal drug enterprise. Shortly after signing the plea agreement, McClendon sought and obtained a mortgage loan from Challenge. She used the mortgage proceeds to satisfy the $40,000 criminal forfeiture. It is this mortgage transaction that has given rise to her state law claims.

McClendon, who started out representing herself, now purports to represent the following class:

All persons who, during the period from May 2, 2002 to the present, purchased services from Challenge Financial Investors Corp. relating to a mortgage loan on Ohio realty other than a business loan as described in R.C. 1343.02(B)(6). (Second Am. Comp. ¶ 60.) On behalf of herself and the class, McClendon asserts a claim for monetary damages against Challenge for its failure to provide mortgage loan origination disclosure statements in compliance with the Ohio Mortgage Brokers Act, O.R.C. Chapter 1322 et seq. ("OMBA") (First Count); a claim for monetary damages against Hartford and Travelers, if liability is proven in the first instance against Challenge, based on the surety bonds they posted supporting Challenge's activities in Ohio (Second Count); and a claim for an order requiring the Ohio Superintendent to declare that Hartford and Travelers are liable on the surety bonds (Third Count).

On August 2, 2011, Hartford removed the case to federal court, asserting that the Court has original subject matter jurisdiction over the case based on the Class Action Fairness Act of 2005 ("CAFA"), Pub.No. 109-2 (119 Stat.) 4 (codified in scattered sections of 28 U.S.C.).

In short order, McClendon filed the pending motion seeking remand of the case to state court because, she argues, this federal court lacked jurisdiction over the subject matter of the case at the time of removal. (Doc #: 12.) Hartford (joined by Travelers) filed the pending motion to dismiss, arguing that McClendon lacks standing to bring an OMBA claim on behalf of herself, let alone others, and her failure to articulate an injury requires dismissal for failure to state a claim. (Doc ##: 11, 24.)

The Court has reviewed both fully briefed motions and finds, for the reasons that follow, that it lacked subject matter jurisdiction over the case at the time of removal. Because the Court lacked subject matter jurisdiction over the case at the ...

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