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Bank of New York Mellon v. Rustad

United States District Court, D. Montana, Missoula Division

August 20, 2018

THE BANK OF NEW YORK MELLON, as Trustee for the Certificate holders of the CWABS, Inc., Asset Backed Certificates, Series 2007-11, Plaintiff and Counterclaim Defendant,
v.
LENNY J. RUSTAD, Defendant and Third Party Plaintiff,
v.
BANK OF AMERICA, N.A., Third Party Defendant.

          ORDER

          DANA L. CHRISTENSEN, CHIEF JUDGE.

         Pending before the Court is Lenny J. Rustad's ("Rustad") Motion to Remand (Doc. 2). For the reasons explained, the Court grants the Motion.

         Factual and Procedural Background

         This case involves a real property dispute concerning lots owned by Rustad, mortgaged with Bank of New York Mellon ("BONY"), and serviced by Bank of America, NA ("BANA"). Currently, there are two related cases pending before this Court: the first is Rustad v. Bank of America, CV-16-72-DLC which is currently stayed. The second is the matter at hand, Bank of New York Mellon v. Rustad, CV-18-62-DLC.[1] While both suits concern the same property and related allegations, only the narrow issue of whether the Court should remand the latter is presently before it. Nonetheless, because these cases are intertwined, the Court will discuss the matter in its entirety.

         On June 8, 2016, Rustad filed suit against BANA in federal court. (Rustad, Doc. 1.) Rustad did not name BONY, the mortgage holder, as a defendant. (See id.) Subsequently, BONY filed suit against Rustad in state court. (BONY, Doc. 11.) In order to defend BONY's claims, Rustad responded by counterclaiming against BONY and added his third-party claims against BANA. (BONY, Doc. 12.) These claims substantially mirror his federal court claims. Therefore, Rustad moved to dismiss his federal claims without prejudice, so the matter could be litigated judiciously in state court. (Rustad, Doc. 25.) BANA objected to dismissal, seeking the benefit of a federal forum. (Rustad, Doc. 28.)

         Back in state court, Rustad argued that BONY's claims against him were time-barred. (BONY, Doc. 15 at 1.) Judge Dayton agreed and dismissed those claims, leaving only Rustad's counter and third-party claims. (BONY, Doc. 15 at 6.) Then, in the federal case, BANA filed a Notice of Supplemental Authority, informing this Court of Judge Dayton's decision, and arguing that it rendered Rustad's motion to dismiss moot. (Rustad, Doc. 30.) This Court subsequently denied the motion as moot and the parties have stayed the federal case. (Rustad, Docs. 31, 33.) However, there is still the matter of Rustad's claims against BONY and BANA. Which brings us to the present issue.

         After Judge Dayton ruled against BONY, BANA (the third-party defendant in the state court action) removed the case to federal court. (BONY, Doc. 1.) Rustad subsequently moved this Court to remand the action, arguing that removal was not appropriate because BANA is not a defendant under 28 U.S.C. § 1441(a). (BONY, Docs. 2, 3.) BANA then defaulted and Rustad moved for default judgment. (BONY, Doc. 5.) Default Judgment was entered by the Clerk of Court on April 4, 2018 (BONY, Doc. 6), and BANA subsequently moved to set it aside (BONY, Doc. 7). The threshold issue is whether this Court has jurisdiction over the removed state court action. Because the Court concludes that it does not, it does not reach the issue of whether to set aside default judgment.

         Discussion

         I. Remand

         In support of its Motion to Remand, Rustad claims that: (1) BANA, a third-party defendant, improperly removed this action under 28 U.S.C. § 1441(a); (2) removal violates the forum-defendant rule; (3) Rustad did not consent to removal; and (4) removal was not timely. (Doc. 3.)

         In response, BANA argues generally that the unique procedural history in this case makes removal appropriate. Specifically, BANA argues that: (1) Rustad initially chose a federal forum to litigate his claims; (2) the Ninth Circuit has not clearly prohibited third-party defendants from removing a case to federal court; (3) additionally, or alternatively, the Court could realign the parties according to their true interests, in which case Rustad would be the plaintiff, rendering BANA the defendant, and thus removal would be proper; and (4) removal was timely. (Doc. 17.)

         A defendant in state court may remove an action to federal court when it could have been filed in federal court originally. 28 U.S.C. § 1441(a); City of Chicago v. International College of Surgeons, 522 U.S. 156, 163 (1997). Removal may be based on either diversity jurisdiction or federal question jurisdiction. 28 U.S.C. § 1441(b). If, at any point prior to a final judgment, a federal district court lacks subject matter jurisdiction because of improper removal, it must remand the case to state court. 28 U.S.C. § 1447(c).

         The removing-party bears the burden to show that removal was appropriate. Gaus v. Miles, Inc., 980 F.2d 564, 566-67 (9th Cir. 1992). "Federal jurisdiction must be rejected if there is any doubt as to the right of removal in the first instance." Id. at 566. If a district court determines that removal was not appropriate, "it is divested of jurisdiction and can take no further action on the case." Wells Fargo Bank, N.A. v. Zimmerman, 2015 WL 9093465, at *3 (CD. Cal. Dec. 16, 2015) (quoting Seedman v. U.S. Dist. Ct. for Cent. Dist. of Cal, 837 F.2d 413 (9th Cir. 1988)).

         The plain language of § 1441(a) allows removal by a "the defendant or the defendants."[2] Though the question has been raised, the Ninth Circuit has not yet squarely addressed whether removal is proper when effectuated by a third-party defendant. Columbia State Bank v. Daybreak Estates, LLC, 2011 WL 832132, at *2 (D. Or. Feb. 9, 2011). "[T]he majority view is that the determination of who is a defendant is determined by the original complaint, not subsequent third or fourth- party complaints." Schmidt v. Association of Apartment Owners of Marco Polo Condominium,780 F.Supp. 699, 702 (D. Haw. 1991) (citing to 1A Moore's Federal Practice § 0.157[7] (1989)); Ciolino v. Ryan, 2003 WL 21556959, at *3 (N.D. Cal. July 9, 2003) (collecting cases). As one Colorado district court explained, an "appropriately strict construction of § 1441(a)... permits removal only 'by the defendant or the defendants,' [which] places a third-party defendant outside the ambit of the removal statute." NCO Fin. Sys., Inc. v. Yari,422 F.Supp.2d 1237, 1239 (D. Col. 2006) (citing Monmouth-Ocean Collection Serv., Inc. v. Klor,46 F.Supp.2d 385 (D.N.J.1999)). The court observed that this rule avoids the odd outcome that results if a plaintiff is forced to litigate in a federal forum that she did not chose and would not have been available to her adversary, if not for the third-party defendant. Id. Allowing third-party defendants to seek a federal forum where there is no diversity of federal question prior to the third-parties involvement increases the jurisdiction of federal courts "in contravention of the statutory limits on the right of ...


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