Opinion
23-CV-00125-DC-RCG
07-09-2024
EVELYN K. MATHIS and RICHARD RAY MATHIS, Plaintiffs, v. ELIZON MASTER PARTICIPATION TRUST I, U.S. BANK TRUST NATIONAL ASSOCIATION, OWNER TRUSTEE, Defendant.
REPORT AND RECOMMENDATION OF THE U.S. MAGISTRATE JUDGE
RONALD C. GRIFFIN, UNITED STATES MAGISTRATE JUDGE
BEFORE THE COURT is Plaintiffs Evelyn K. Mathis and Richard Ray Mathis's Motion to Remand to State Court. (Doc. 10). This matter is before the undersigned United States Magistrate Judge through a standing order of referral pursuant to 28 U.S.C. § 636 and Appendix C of the Local Court Rules for the Assignment of Duties to United States Magistrate Judges. After due consideration of the Parties' briefing and the relevant case law, the Court RECOMMENDS that Plaintiffs' Motion to Remand be GRANTED. (Doc. 10).
I. Background
On June 5, 2023, Plaintiffs filed their Original Complaint in the case styled Evelyn K. Mathis and Richard Ray Mathis v. Elizon Master Participation Trust I, U.S. Bank Trust National Association, Owner Trustee, Cause Number CV59664 in the 441st District Court of Midland County, Texas. (Doc. 1 at 1). Plaintiffs sought a Bill of Review to set aside a foreclosure order previously entered by the 441st District Court of Midland County on September 9, 2022, under Texas Rule of Civil Procedure 736. (Doc. 1-1 at 2). The property at issue is 4312 Nicklaus Street, Midland, Texas 79705. Id. Plaintiffs argue a Bill of Review is appropriate because of procedural defects, i.e., failure to serve Plaintiffs with citation and a copy of the “Application for Expedited Order Allowing Foreclosure, nor were Plaintiffs served with Notice of Hearing.” Id. at 6. Plaintiffs also sought an emergency ex parte temporary restraining order and temporary injunction to keep Defendant from completing foreclosure in the property. Id. at 8. On June 5, 2023, the 441st Midland County District Court signed a temporary restraining order, restraining foreclosure on the property that is the basis of this suit. (Doc. 1 at 2). The Court's temporary restraining order also set a hearing regarding a preliminary injunction for June 16, 2023. Id. Before the temporary injunction hearing could be held, the Parties entered into a Rule 11 agreement under Texas law wherein “The parties agreed to pass on the temporary injunction hearing in order to discuss settlement options” for 60 days. (Docs. 10 at 3; 10-4 at 1).
Then on August 10, 2023, Elizon Master Participation Trust I, U.S. Bank Trust National Association, Owner Trustee (“Defendant”) removed this case to federal court based on diversity jurisdiction. The Court held a hearing on October 31, 2023, as it had serious concerns regarding its subject matter jurisdiction and set a briefing schedule for Plaintiffs' Motion to Remand. (Docs. 7, 9, 12). In accordance with the briefing schedule Plaintiffs filed the instant Motion to Remand to State Court on November 22, 2023. (Doc. 10). Defendant filed its Response on December 6, 2023. (Doc. 11). Plaintiffs did not file a Reply. Consequently, this matter is ripe for disposition.
II. Legal Standard
It is widely recognized that federal courts are courts of limited jurisdiction, as “[t]hey possess only that power authorized by Constitution and statute.” Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377 (1994) (citing Willy v. Coastal Corp., 503 U.S. 131, 136-37 (1992)). “Removal of an action to a federal court is proper when a civil action brought in state court would otherwise be within the original jurisdiction of the federal courts.” Blazejewski v. Allstate Fire & Cas. Ins., No. SA-21-CV-00700-JKP, 2021 WL 4173429, at *1 (W.D. Tex. Sept. 13, 2021) (citing 28 U.S.C. § 1441). However, “a case filed in state court may be removed to federal court only by ‘the defendant or the defendants.' ” Valencia v. Allstate Tex. Lloyd's, 976 F.3d 593, 595 (5th Cir. 2020) (quoting 28 U.S.C. § 1441(a)).
Following removal to a proper federal court, an opposing party may move to remand the action to state court. Blazejewski, 2021 WL 4173429, at *1. When considering a motion to remand, any doubts or ambiguities should be resolved in favor of remanding to state court and the removing party bears the burden of showing federal jurisdiction exists and removal was proper. See Mumfrey v. CVS Pharm., Inc., 719 F.3d 392, 397 (5th Cir. 2007).
III. Discussion
As the removing entity, Defendant bears the burden of proving it was entitled to remove the case to this Court. See Valencia, 976 F.3d at 595. Plaintiffs' Motion to Remand centers around the case's lack of federal question, but that is inapposite here, as the Defendant's basis for federal jurisdiction is diversity of citizenship. However, the Court “has an independent responsibility to address questions of subject-matter jurisdiction, even when parties ‘overlook or elect not to press' the issue.” Kumar v. Panera Bread Co., 2024 WL 1216562, at *2 (5th Cir. Mar. 21, 2024) (quoting Henderson ex rel. Henderson v. Shinseki, 562 U.S. 428, 434 (2011); and citing Gonzalez v. Thaler, 565 U.S. 134, 141 (2012)). The Court's concern regarding subject matter jurisdiction centers around Barrow v. Hunton and its progeny-that this suit represents a mere continuation of the original state court suit.
In Barrow, the Supreme Court held that a supplemental, or ancillary proceeding, though formally a separate action, may not be removed independent of the original state-court action if the supplemental action is “so connected with the original suit as to form an incident to it, and substantially a continuation of it.” Barrow v. Hunton, 99 U.S. 80, 82-83 (1878). “In Barrow, the petitioner brought a petition in state court seeking a decree of nullity to relieve him of an earlier state-court judgment that he asserted had been obtained without service on him.” Wuxi Taihu Tractor Co., Ltd. v. York Grp., Inc., 460 Fed.Appx. 357, 358 (5th Cir. 2012) (per curiam). The Barrow parties were diverse, and the defendant removed petitioner's action for a decree of nullity to federal court. Barrow, 99 U.S. at 82. “The Supreme Court acknowledged that a suit seeking relief from a previous state-court judgment could be removed if the asserted grounds of relief presented a substantively separate lawsuit.” Wuxi, 460 Fed.Appx. at 358 (citing Barrow, 99 U.S. at 83, 85). But federal courts lack jurisdiction over a removed action that “is merely tantamount to the common-law practice of moving to set aside a judgment for irregularity, or to a writ of error, or to a bill of review or an appeal . . . and the Unites States court could not properly entertain jurisdiction of the case.” Barrow, 99 U.S. at 83.
To its credit, Defendant does address the Court's concern in its Response. (Doc. 11 at 89). Defendant asserts that Plaintiffs plead for relief not presented in the original action, since in the “prayer for relief' section of their Complaint Plaintiffs seek damages from Defendant's alleged violation of the bankruptcy stay. (Doc. 11 at 8-9). According to Defendant, this presents an independent civil action as it is “founded on wholly new legal theories.” Id. at 9. Further, Defendant alleges other novel claims in Plaintiffs' Complaint are present since Plaintiffs seek damages, make substantive claims they were not in default, and allege Defendant failed to provide them notice “in an effort to expedite an ill-intended effort to foreclose on Plaintiffs' home as soon as possible.” Id.
Thus, the issue before the Court is best summarized as distinguishing “between cases seeking a ‘revision of errors and irregularities, or of the legality and correctness of the judgments and decrees of the State courts' and those that constitute ‘a new case arising upon new facts, [which] although having relation to the validity of an actual judgment or decree, or of the party's right to claim any benefit by reason thereof,' are nevertheless independent of the previous judgment. Basic Cap. Mgmt., Inc. v. Dyex Cap., Inc., 2017 WL 5197145, at *2 (N.D. Tex. Nov. 7, 2017) (quoting Barrow, 99 U.S. at 83). The Court now examines whether the claims in this suit qualify under Barrow as separate from the original state suit.
To begin, “[a] bill of review is a Texas-law equitable proceeding through which a party may seek relief from a judgment no longer challengeable by appeal or a motion for new trial.” Wuxi, 460 Fed.Appx. at 359 (per curiam) (citing Caldwell v. Barnes, 154 S.W.3d 93, 96 (Tex. 2004)). In Wuxi, the plaintiff filed a bill of review action in a Texas state court that was removed to federal court. Id. at 358. The district court denied plaintiff's motion to remand, which plaintiff appealed. Id. The Fifth Circuit relied on Barrow's reasoning and concluded the district court lacked subject matter jurisdiction because “the instant suit is a supplementary action seeking to nullify a state-court judgment rendered in a prior suit on the basis of procedural irregularities, and Wuxi alleges no claim or defense that was not previously before the state court.” Id. at 359.
In the case Croswait v. Wilmington Sav. Fund Soc'y FSB, a court in the United States District Court for the Eastern District of Texas undertook an in-depth discussion of cases involving bills of review removed to Texas federal courts. No. 4:19-CV-305, 2020 WL 1242449, at *6-8 (E.D. Tex. Mar. 16, 2020).
The Croswait Court began with the Western District of Texas case Alanis v. Bank Nat. Assoc. In Alanis, the plaintiff sought to set aside a default judgment issued against her in state court. No. SA-12-CA-288-OG, 2012 WL 13148796, at *1 (W.D. Tex. June 4, 2012). The plaintiff filed a new case in a different state court than the one that issued the default judgment asserting numerous federal and state claims, the defendants removed the case to federal court. Id. at *2-3. Thereafter, the plaintiff filed a petition for bill of review in the same state court that issued the default judgment originally. Id. at *3. The defendants removed this second case-the bill of review action-to federal court. Id. The plaintiff moved to remand under Rooker-Feldman. Id. at *7.
“First, the Western District of Texas concluded it had federal question jurisdiction over some of the plaintiff's claims because the plaintiff sought relief arising from federal law.” Croswait, 2020 WL 1242449, at *7 (citing Alanis, 2012 WL 13148796, at *9). “But upon considering the plaintiff's bill of review action, the Western District severed and remanded it because a bill of review action-which is a direct attack on a judgment-‘must be brought in the court that rendered the contested judgment, or in an appellate court having jurisdiction over that court.' ” Id. at *7 (quoting Alanis, 2012 WL 13148796, at *11). In making its decision, the Alanis Court emphasized that “[f]ederal courts lack jurisdiction over an action that is ‘merely tantamount to the common-law practice of moving to set aside a judgment for irregularity, or to a writ of error, or to a bill of review[.]' ” Alanis, 2012 WL 13148796, at *11 (quoting Wuxi, 460 Fed.Appx. at 359). The Alanis Court concluded that “since the Western District did not ‘have original or supplemental jurisdiction over Alanis' state law action for bill of review to void or set aside' a state court order, the Western District severed and remanded the claim to state court.” Croswait, 2020 WL 1242449, at *7 (citing Alanis, 2012 WL 13148796, at *11).
The Croswait Court then turned to Brown v. Bank of Am., N.A. from the Northern District of Texas as an example of “when a court may properly exercise jurisdiction in this area.” Id. at *8. The Brown Court denied the plaintiffs' motion to remand involving an action for bill of review. No. 3:13-CV-2843-D, 2013 WL 5538693, at *3 (N.D. Tex. Oct. 8, 2013). Brown distinguished the case from Wuxi, because the plaintiffs “neither allege procedural irregularities in the previous state proceedings nor do they assert the same claims or defenses as before. The [plaintiffs] do the opposite. They maintain that they thought their counsel was going to present their arguments in the previous proceeding, but because counsel failed to do so, they ‘[were] unable to present” them at that time.' ” Id. (citation omitted). The Brown Court concluded that the plaintiffs' bill of review action constituted “a new case arising upon new facts” because it was “not based on procedural irregularities, and because it presents legal arguments not presented during the earlier proceeding.” Id. (quoting Barrow, 99 U.S. at 83).
Croswait itself involved a bit more of a complex background-the plaintiffs filed an action which sought to vacate a state court order granting a bill of review and setting aside a default judgment. 2020 WL 1242449, at *1. The plaintiffs sought a “declaratory judgment that declares the order granting [defendant]'s petition for bill of review is void with respect to [Plaintiffs], and therefore, the Default Judgment remains valid.” Id. (citation omitted). The defendants removed the case to federal court and the plaintiffs' motion to remand was before the Eastern District of Texas for consideration. Id. After its discussion of Barrow-related case law, the Croswait Court concluded that “in the instant case, Plaintiffs argue the Court should vacate the state court order granting the bill of review because of procedural irregularities-namely, that Plaintiffs ‘were not served with process in the prior state court action' ” and found Wuxi applicable rather than Brown. Id. at *8 (citation omitted). Additionally, the Croswait Court noted the plaintiffs were “attempting to directly attack the validity of the bill of review based on procedural irregularities” and did “not raise new any new legal arguments like the plaintiff in Brown did.” Id.
Here, the Court finds the instant case more analogous to Wuxi, Alanis, and Croswait, as Plaintiffs' action is one for bill of review only wherein Plaintiffs argue the bill of review should be granted because of procedural irregularities-namely that Plaintiffs did not receive process prior to the state court's foreclosure order. (Doc. 1-1 at 2-7). The Court also notes that despite Defendant's argument, Plaintiffs' Complaint for Bill of Review does not present formal causes of action for violation(s) of a bankruptcy stay-merely putting that in their prayer for relief does not transform it into a formal claim. Further, Plaintiffs arguments regarding the state court proceeding violating a bankruptcy stay are more likely than not also arguments regarding procedural irregularities. Ultimately, Plaintiffs' asserted grounds of relief presented in their Complaint for Bill of Review constitute “a supplementary proceeding so connected with the original suit as to form an incident to it, and substantially a continuation of it,” as contemplated by the Supreme Court in Barrow. 99 U.S. at 82. This is true particularly considering the presumption that federal courts lack subject matter jurisdiction and “doubts regarding whether removal jurisdiction is proper should be resolved against federal jurisdiction.” Acuna v. Brown & Root Inc., 200 F.3d 335, 339 (5th Cir. 2000) (citing See Willy v. Coastal Corp., 855 F.2d 1160, 1164 (5th Cir. 1988)).
In sum, the Court thus lacks subject matter jurisdiction and must remand the case to state court.
IV. Recommendation
In accordance with the discussion above, the undersigned RECOMMENDS Plaintiffs' Motion to Remand be GRANTED. (Doc. 10).
SIGNED.
Instructions for Service and Notice of Right to Appeal/Object
In the event that a party has not been served by the Clerk with this Report and Recommendation electronically, pursuant to the CM/ECF procedures of this District, the Clerk is ORDERED to mail such party a copy of this Report and Recommendation by certified mail. Pursuant to 28 U.S.C. § 636(b)(1), any party who desires to object to this report must serve and file written objections within fourteen (14) days after being served with a copy. A party filing objections must specifically identify those findings, conclusions, or recommendations to which objections are being made; the District Judge need not consider frivolous, conclusive, or general objections. Such party shall file the objections with the Clerk of the Court and serve the objections on all other parties. A party's failure to file such objections to the proposed findings, conclusions, and recommendations contained in this report shall bar the party from a de novo determination by the District Judge. Additionally, a party's failure to file written objections to the proposed findings, conclusions, and recommendations contained in this report within fourteen (14) days after being served with a copy shall bar that party, except upon grounds of plain error, from attacking on appeal the unobjected-to proposed factual findings and legal conclusions accepted by the District Judge. Douglass v. United Servs. Auto. Ass'n, 79 F.3d 1415, 1428-29 (5th Cir. 1996).