Opinion
3:23-cv-01348-AR
07-17-2024
JOEL C. GROSHONG, an Individual, Plaintiff, v. MTGLQ INVESTORS, L.P., a Delaware limited partnership, RUSHMORE LOAN MANAGEMENT SERVICES, LLC, a foreign limited liability company, JOHN DOES 1-5, Defendant, RUSHMORE LOAN MANAGEMENT SERVICES, LLC, a foreign limited liability company, AND MTGLQ INVESTORS, L.P., a Delaware limited partnership, Counter Claimant, v. JOEL C. GROSHONG, an Individual Counter Defendant.
FINDINGS AND RECOMMENDATION
JEFF ARMISTEAD UNITED STATES MAGISTRATE JUDGE
Plaintiff Joel C. Groshong filed an action seeking to halt nonjudicial mortgage foreclosure proceedings in Washington County Circuit Court by defendants MTGLQ Investors, L.P., Rushmore Loan Management Services, LLC, and John Does 1-5. After Groshong secured a Temporary Restraining Order (TRO) and initiated preliminary injunction proceedings in state court, defendants removed the action as permitted by 28 U.S.C. § 1446(b), based on diversity jurisdiction under 28 U.S.C. § 1332(a). Before the court is Groshong's motion to remand the action to state court. As explained below, Groshong's motion should be DENIED.
BACKGROUND
The relevant events occurred in August and September 2023. On August 28, Groshong filed a complaint for declaratory relief, a motion for a TRO, and a motion to show cause why a preliminary injunction should not be issued against defendants in state court. (Notice of Removal Ex. 1, ECF No. 1-1.) The next day, the state court granted Groshong's TRO that stayed defendants' nonjudicial foreclosure sale of property located at 2335 Sunset Drive, Forest Grove, Oregon 97116 (the property). (Notice of Removal Ex. 5, ECF No. 1-5.) In granting the TRO, defendants were ordered to appear at a September 5 hearing to determine whether a preliminary injunction should be issued that would prevent foreclosure until the case was resolved. (Id.) Defendants were served with the complaint on August 30.
Two days later, defendants responded to Groshong's show cause motion and submitted a supporting declaration from Anthony Younger, who was then employed by Rushmore. (Notice of Removal Exs. 6-7, ECF No. 1-6, 1-7.) Before the hearing, Groshong filed a reply and a motion to strike Younger's declaration. (Notice of Removal Exs. 8-9.) On September 5, Washington County Circuit Court Judge Theodore E. Sims heard arguments from the parties, continued the hearing to October 4, and continued the stay of foreclosure through October 18. (Notice of Removal Ex. 10, ECF No. 1-10.) On September 15, defendants removed the action to this court asserting diversity jurisdiction under 28 U.S.C. § 1332(a). Groshong's motion to remand followed.
Plaintiff is a citizen of Louisiana. (Pl.'s Mot. Remand at 7, ECF No. 7.) MTGLQ states that it is a Delaware limited partnership whose general partner is MLQ, LLC, and whose limited partner is The Goldman Sachs Group, Inc. (“GSG Inc.”), a publicly traded Delaware corporation with its principal place of business in New York. MLQ, LLC's members are Goldman Sachs Global Holdings LLC (GSG Holdings) and GSG Inc. GSG Holdings is a Delaware limited liability company whose members are Goldman Sachs & Co. LLC, a Delaware limited liability company, and GSG Inc. Goldman Sachs & Co. LLC's sole member is GSG Inc. Based on those various entities, MTGLQ states that its ultimate member is a Delaware entity with its principal place of business in New York. (Def.'s Corp. Discl. Stmt., ECF No. 2.)
Rushmore provides that it is an indirect, wholly owned subsidiary of Mr. Cooper Group, Inc. (Mr. Cooper), a Delaware corporation with its principal place of business in Texas.Rushmore also states that it is directly owned by two entities: (1) Sub1 DE LLC (Sub1 DE) (99 percent), and (2) Sub2 DE LLC (Sub2 DE) (one percent), which are both Delaware limited liability companies. Sub1 DE and Sub2 DE are directly owned by Nationstar Mortgage LLC, a Delaware limited liability company. In turn, Nationstar Mortgage LLC is directly owned by Nationstar Sub1 LLC and Nationstar Sub2 LLC, which are both Delaware limited liability companies that are wholly owned by Nationstar Mortgage Holdings Inc. (NSM Holdings). NSM Holdings is a Delaware corporation with its principal place of business in Texas and is a wholly owned subsidiary of Mr. Cooper. Based on those various corporate entities, Rushmore attests that its ultimate member is a Delaware entity with its principal place of business in Texas. (Def.'s Am. Corp. Discl. Stmt., ECF No. 20.)
At the court's direction, Rushmore filed an Amended Corporate Disclosure Statement on July 9, 2024. (ECF Nos. 19-20.)
Groshong seeks to remand the case to state court because (1) defendants have not established complete diversity, (2) defendants have waived the right to remove, and (3) various abstention principles warrant state court resolution. Defendants oppose remand, arguing that complete diversity exists, they did not waive their right to remove, and the abstention principles on which Groshong relies are inapplicable.
LEGAL STANDARD
“A defendant may remove an action to federal court based on federal question jurisdiction or diversity jurisdiction.” Hunter v. Philip Morris USA, 582 F.3d 1039, 1042 (9th Cir. 2009) (citing 28 U.S.C. § 1441). A defendant seeking removal “bears the burden of establishing that the statutory requirements of federal jurisdiction have been met.” Rodriguez v. AT & T Mobility Servs. LLC, 728 F.3d 975, 978 (9th Cir. 2013). Under 28 U.S.C. § 1446(b), a notice of removal must be filed within 30 days of service. “A motion to remand is the proper procedure for challenging removal.” Moore-Thomas v. Alaska Airlines, Inc., 553 F.3d 1241, 1244 (9th Cir. 2009) (citing 28 U.S.C. § 1447(c)). Because there is a strong presumption against removal, defendants have the burden of establishing that removal is proper. Sharma v. HSI Asset Loan Obligation Tr. 2007-1, 23 F.4th 1167, 1169-70 (9th Cir. 2022).
DISCUSSION
A. Removal on Diversity Grounds
Defendants removed this action on diversity grounds and must establish that: (1) the suit is between citizens of different states; and (2) the amount in controversy exceeds $75,000. 28 U.S.C. § 1332(a); In re Digimarc Corp. Derivative Litig., 549 F.3d 1223, 1234 (9th Cir. 2008) (“Diversity jurisdiction requires complete diversity between the parties - each defendant must be a citizen of a different state from each plaintiff.”). A corporation is a citizen of any state where it is incorporated or has its principal place of business, Hertz Corp. v. Friend, 559 U.S. 77, 88 (2010), and a limited liability company is a citizen of every state in which its owners or members are citizens. See Johnson v. Columbia Props. Anchorage, LP, 437 F.3d 894, 899 (9th Cir. 2006) (“We therefore join our sister circuits and hold that, like a partnership, an LLC is a citizen of every state of which its owners/members are citizens.”).
Groshong does not contest that amount in controversy here exceeds $75,000. Defendants have submitted information showing that the value of the property exceeds the jurisdictional threshold. (Notice of Removal Ex. 1 at 64, ECF No. 1-1.) Accordingly, that element of diversity jurisdiction is satisfied.
Groshong contends that Rushmore, through its Corporate Disclosure Statement, has failed to plead the citizenship of each of its LLC members. Rushmore was formerly Nationstar, which has been rebranded as Mr. Cooper. (Pl.'s Mot. Remand at 10-11, ECF No. 7.) According to Groshong, Nationstar has its principal place of business in Texas, yet that information is absent from Rushmore's corporate disclosure information. Groshong questions that Rushmore has adequately identified the citizenship of Mr. Cooper, because it also provides that “more than 10% of the stock of Mr. Cooper is owned by (a) Blackrock, Inc., a Delaware corporation, and certain of its affiliates and (b) The Vanguard Group, Inc., a Pennsylvania corporation, and certain of its affiliates.” (Pl.'s Reply at 3, ECF No. 15.) Because Blackrock's and Vanguard's affiliates are not identified and their citizenship is unknown, in Groshong's view, Rushmore has not established complete diversity.
In his Reply, Groshong concedes that MTGLQ's corporate disclosure statement is sufficient. (Reply at 2-3, citing Corp. Disclosure Stmt., ECF No. 2.) And the court need not determine the citizenship of Does 1-5. See 28 U.S.C. § 1441(b) (providing that “the citizenship of defendants sued under fictious names shall be disregarded”).
Defendants make three primary arguments in response: (1) Groshong “introduces no admissible evidence demonstrating a lack of complete diversity,” (2) Rushmore is not Nationstar, and (3) Rushmore is owned by Mr. Cooper, a Delaware corporation.
On Rushmore's first point, as the party asserting federal jurisdiction, it is Rushmore's burden, not Groshong's, to establish that removal is proper. Sharma, 23 F.4th at 1169-70. Rushmore's second and third points, however, are well-taken. After reviewing Rushmore's amended corporate disclosure statement, the court is satisfied that Rushmore has established complete diversity. Rushmore provides that it is a wholly owned subsidiary of Mr. Cooper. Further, the corporate entities within Rushmore ultimately are owned 100 percent by NSM Holdings, a Delaware corporation with its principal place of business in Texas. Thus, Rushmore has shown that its members are citizens of Delaware and Texas. Johnson, 437 F.3d at 899 (stating corporations are citizens of their place of incorporation and their principal place of business). Contrary to Groshong's contention, because Blackrock and Vanguard are not members of Rushmore, Rushmore need not plead the citizenship of Blackrock, Vanguard, and their affiliates.
In short, Rushmore has established that its members are citizens of Delaware and Texas, MTGLQ's members are citizens of Delaware and New York, and Groshong is a citizen of Louisiana. As a result, complete diversity exists.
B. Waiver of Right to Remove
Defendants may waive the right to remove “where, after it is apparent that the case is removable, the defendant takes actions in state court that manifest his or her intent to have the matter adjudicated there, and to abandon his or her right to a federal forum.” Resol. Tr. Corp. v. Bayside Devs., 43 F.3d 1230, 1240 (9th Cir. 1994). Waiver of the right to remove must be “clear and unequivocal” and generally “is not lost by action in the state court short of proceeding to an adjudication on the merits.” Id. (simplified). Taking necessary defensive action in state court “solely for the defensive purpose of preserving the status quo pending removal” has not been construed as a waiver of a defendant's right to remove. Id. at 1240; Kenny v. Wal-Mart Stores, Inc., 881 F.3d 786, 790 (9th Cir. 2018).
Groshong argues that defendants waived their right of removal when they contested the show cause motion in state court and asserted unique legal arguments under Oregon's nonjudicial foreclosure statute that manifested their intent to have the case resolved in state court. Because defendants asserted that Rushmore possessed the original Note and was a “person entitled to enforce” under Oregon law, in Groshong's view, defendants were seeking a decision on the merits, relying on RH Kids, LLC v. Quality Loan Serv., Case No. 2:22-cv-00297-APG-EJY, 2022 WL 2659115 (D. Nev. June 30, 2022).
Groshong filed his complaint in state court on August 28; therefore, defendants' September 15 notice of removal was well within the 30-day statutory period. 28 U.S.C. § 1446(b)(1) (“The notice of removal . . . shall be filed within 30 days.”). Groshong does not assert that removal was untimely.
Plaintiff's reliance on RH Kids is misplaced. There, the plaintiff RH Kids filed suit in state court seeking to stop a foreclosure sale of its property, and after the state court issued a preliminary injunction, the defendants removed based on diversity. Id. at *1. The federal court observed that while the case was pending in state court, defendant Lakeview “could have opposed the motion for preliminary injunction by addressing the standards for an injunction,” which is a “necessary defensive action” that employs a “standard lower than an actual adjudication of the merits.” Id. at *2 (quoting Resol. Tr., 43 F.3d at 1240). Instead, Lakeview filed a countermotion to dismiss and a supplemental motion that contended RH's suit was barred by claim, preclusion - motions that required decisions on the merits. By doing so, the defendants “abandoned their right to remove” and the RH Kids court therefore remanded the case to state court. Id. at *2.
Unlike RH Kids, defendants here solely filed a response to the preliminary injunction motion in state court, a defensive action to preserve the status quo. And unlike RH Kids, defendants filed no affirmative motions or counterclaims while the action was pending in state court. Confirming that they did not intend to waive their right to remove, defendants highlight footnote one of their responsive briefing in state court:
By defending against Plaintiff's Motion and filing this Response, Defendants do not stipulate to or manifest an intent to have the matter adjudicated in [state court] or to abandon their rights to a federal forum.(Notice of Removal Ex. 6 at 1, ECF No. 1-6.) The court agrees with defendants that the footnote forecasted their intent to seek removal and bolsters their contention that they did not seek a merits determination in state court.
Contrary to Groshong's suggestion, defendants' discussion of their right to foreclose also did not manifest an intent to have the state court resolve the merits of the case. Instead, defendants were responding to his preliminary injunction - which required discussing the likelihood of Groshong prevailing on the merits - a standard that is lower than adjudication on the merits. See Resol. Tr., 43 F.3d at 1240 (holding that taking defensive action in state court does not manifest intent to litigate in state court); Song v. MTC Fin., Inc., 812 Fed.Appx. 609, 610 (9th Cir. 2020) (holding that district court properly rejected plaintiffs' argument that responding to preliminary injunction in state court waived removal). By asserting that they were entitled to enforce the provision of the Note due to Groshong's default, defendants were responding to the appropriate legal standard. See McCarthy v. Servis One, Inc., Case No. 17-00900-WHO, 2017 WL 897422, at *5-6 (N.D. Cal. Mar. 7, 2017) (holding that actions taken by mortgage loan servicer and trust deed holders did not waive right to removal when they opposed preliminary injunction to enjoin foreclosure proceedings in state court).
On this record, defendants were acting defensively when they opposed the preliminary injunction, did not manifest an intention to have the state court adjudicate the merits, and thus did not waive their right to remove. Barbin v. Albany Int'l Corp., No. C07-1454RSL, 2007 WL 4376181, at *2 (W.D. Wash. Dec. 12, 2007) (finding removal not waived where defendants' responses filed in state court were required and removal filed within 30 days of service); see also Acosta v. Direct Merchants Bank, 207 F.Supp.2d 1129, 1131 (S.D. Cal. 2002) (collecting cases distinguishing between affirmative actions in state court that waive removal rights and defensive actions that preserve removal rights); Koklich v. Cal. Dept. of Corr., No. 1:11-cv-01403-DLB PC, 2012 WL 653895, at *4 (E.D. Cal. Feb. 28, 2012) (collecting cases discussing same and finding demurrer filed in state court did not waive right to remove).
C. Abstention Doctrines
Groshong asserts that because there is an ongoing state court action involving substantial state law issues, this court should decline jurisdiction under Wilton/Brillhart or Colorado River abstention doctrines. In his Reply, Groshong also contends that Burford abstention applies because this case involves complex issues of state law. According to Groshong, a state court should resolve the legal issues about whether: (1) defendants must identify a beneficiary when pursuing nonjudicial foreclosure under the Oregon Trust Deed Act, and (2) what statute of limitations governs trust deed foreclosures. Plaintiff's arguments are unavailing.
Wilton v. Seven Falls Co., 515 U.S. 277, 286-90 (1995); Brillhart v. Excess Ins. Co. of Am., 316 U.S. 491, 494-95 (1942); Colo. River Water Conservation Dist. v. United States, 424 U.S. 800, 817 (1976); Burford v. Sun Oil Co., 319 U.S. 315, 333-34 (1943).
Through the removal statute, 28 U.S.C. § 1446(d), Groshong's state court action is no longer “pending” in state court. By filing the notice of removal, the state court action has been automatically halted. 28 U.S.C. § 1446(d) (providing that filing notice of removal “effect[s] the removal and the State court shall proceed no further unless and until the case is remanded”); see Maseda v. Honda Motor Co., 861 F.2d 1248, 1254-55 (11th Cir. 1988) (holding that “after removal, the jurisdiction of the state court absolutely ceases and the state court has a duty not to proceed any further in the case”). Consequently, there is no pending state action and no risk of concurrent federal and state jurisdiction to which the Colorado River doctrine could apply. See, e.g., Smith v. Cent. Ariz. Water Conservation Dist., 418 F.3d 1028, 1032-33 (9th Cir. 2005) (expressing that Colorado River doctrine is a narrow exception to federal jurisdiction and permits federal court, in the exercise of “wise judicial administration,” to stay or dismiss the federal action “pending resolution of concurrent state court proceedings”).
Likewise, Wilton/Brillhart is inapplicable. The Wilton/Brillhart doctrine gives a federal court discretion to stay or dismiss a federal declaratory judgment action when the questions at issue are better resolved in a pending state court action. R.R. Street & Co. v. Transport Ins., 656 F.3d 966, 975 (9th Cir. 2011). Under Wilton/Brillhart, abstention may be appropriate to avoid the risk of duplicative litigation, forum-shopping, and needless entanglement between federal and state courts. Id.; Gov't Emps. Ins. v. Dizol, 133 F.3d 1220, 1225 (9th Cir. 1998). Because there is no pending state action after removal, none of the Wilton/Brillhart factors are present here. Nationwide Ins. of Am. v. Marquez, Case No. 2:16-cv-01978-WHO, 2016 WL 7104240, at *5-6 (E.D. Cal. Dec. 5, 2016) (determining that “[b]ecause there is no parallel proceeding,” Brillhart factors were not present and the court's exercise of jurisdiction was appropriate).
Burford abstention also does not apply. Burford permits federal courts to “decline to rule on an essentially local issue arising out of a complicated state regulatory scheme.” United States v. Morros, 268 F.3d 695, 705 (9th Cir. 2001). Its application requires: “(1) that the state has chosen to concentrate suits challenging the actions of the agency involved in a particular court; (2) that federal issues could not be separated easily from complicated state law issues with respect to which the state courts might have special competence; and (3) that federal review might disrupt state efforts to establish a coherent policy.” Blumenkron v. Multnomah County, 91 F.4th 1303, 1312 (9th Cir. 2024) (quoting Morros, 268 F.3d at 705).
Groshong satisfies none of the Burford criteria. Declaratory actions on mortgage foreclosures have not been concentrated in a particular court by the Oregon legislature, he identifies no federal issues that cannot be separated from state law issues, and he identifies no coherent local policy that would be frustrated by the court's resolution of this action. Id. at 1314 (“Burford abstention is inappropriate where the federal questions can readily be identified and reserved without colliding with what are essentially state claims.” (simplified)); New Orleans Pub. Serv., Inc. v. Council of City of New Orleans, 491 U.S. 350, 361-62 (1989) (holding Burford abstention inappropriate because federal jurisdiction would “not disrupt” state's attempt to ensure uniformity in treatment of “essentially local problem”).
Finally, the court is not persuaded by Groshong's contention that a state court must resolve issues applying the Oregon Trust Deed Act and determine the appropriate statute of limitations under state law. Federal courts often resolve thorny state-law issues, including questions about the Oregon Trust Deed Act, judicial and nonjudicial foreclosures, and which statute of limitations applies. See, e.g., Aazami v. Wells Fargo Bank, Nat'l Ass'n, Case No. 3:17-cv-01564-BR, 2019 WL 281286, *5-6 (D. Or. Jan. 22, 2019) (interpreting Oregon Trust Deed Act in nonjudicial foreclosure action, granting summary judgment); Tadros v. Wilmington Tr., Nat'l Ass'n, Case No. 3:17-cv-01623-AA, 2018 WL 1924464, at *2 (D. Or. Apr. 23, 2018) (interpreting Oregon Trust Deed Act in nonjudicial foreclosure action, denying preliminary injunction); Bank of N.Y. Mellon v. Humbarger, Case No. 3:16-cv-02012-AC, 2019 WL 4899664, at *3 (D. Or. Aug. 1), adopted 2019 WL 4935431 (Oct. 7, 2019) (discussing 10-year statute of limitations under ORS § 88.110 in judicial foreclosure case).
Because federal courts a have a “virtually unflagging” obligation to adjudicate cases over which they have jurisdiction, and exceptional circumstances are not present that would preclude this court's jurisdiction, remanding on abstention grounds is unwarranted. Morros, 268 F.3d at 703.
CONCLUSION
For the above reasons, Groshong's Motion to Remand (ECF No. 7) should be DENIED.
SCHEDULING ORDER
The Findings and Recommendation will be referred to a district judge. Objections, if any, are due within 14 days. If no objections are filed, the Findings and Recommendation will go under advisement on that date. If objections are filed, a response is due within 14 days. When the response is due or filed, whichever date is earlier, the Findings and Recommendation will go under advisement.