Opinion
Case Number 05-10290-BC.
January 17, 2006
ORDER DENYING MOTION TO REMAND AND SCHEDULING CASE MANAGEMENT CONFERENCE
This case is before the Court on the plaintiffs' motion to remand the matter to state court. Defendants Beal Bank, SSB ("Beal Bank"), and LPP Mortgage, Ltd. ("LPP") filed a notice of removal in this Court on November 10, 2005 on the basis of diversity of citizenship. The plaintiffs are citizens of Michigan. The parties agree that one of the defendants, Michael J. Sloan and Associates ("Sloan"), also is a citizen of Michigan, but the defendants insist that Sloan was fraudulently joined by the plaintiffs in an attempt to defeat diversity jurisdiction. Defendants Beal Bank and LPP have filed a response to the plaintiffs' motion to remand. The Court agrees that the fraudulent joinder rule applies. Therefore, the Court will deny the motion to remand, dismiss Sloan as a party defendant, and direct the remaining parties to appear for a conference under Federal Rule of Civil Procedure 16.
I.
The plaintiffs filed this action in the Saginaw County Circuit Court, alleging that they were owed a foreclosure surplus of $29,822.05 and seeking additional damages for the wrongful death of Thomas M. Miller. According to the pleadings, plaintiffs Thomas M. Miller and Parvenu Corporation had signed a promissory note for $401,000 in favor of East Central Michigan Development Corporation, a Michigan nonprofit corporation, on March 22, 1989; the note was secured by a second mortgage on certain real properties they owned. Plaintiff Karen Ann Miller also signed the mortgage. That same day, the mortgage and note were assigned to the United States Small Business Administration (SBA). Apparently, as further security for the debt, Thomas M. Miller, as principal officer of Parvenu Corporation, assigned his $500,000 life insurance policy to the SBA on March 27, 1989. On July 3, 2001, the Small Business Administration assigned the second mortgage and note to defendant LPP Mortgage, Ltd. On March 8, 2004, the first lienholder also assigned certain mortgages, notes, and liens to LPP. Beal Bank was the servicing company for LPP related to the mortgage.In February of 2003, defendant LPP filed an affidavit and notice of default with the recorder of deeds in Saginaw County, Michigan, alleging that the plaintiffs had defaulted on their mortgage obligations. Thereafter, the defendants demanded the surrender of Thomas Miller's life insurance policy. Litigation ensued, and on January 5, 2004, the state court appointed defendant Sloan as receiver over a commercial real estate owned by the plaintiffs. The Saginaw County Circuit Court issued a judgment of foreclosure and deficiency on February 9, 2004. The plaintiffs assert that the defendants also seized certain personal property of the plaintiffs (including a 1999 Jeep) pursuant to a court order on July 14, 2004. Thomas M. Miller committed suicide on October 4, 2004. The mortgaged property was ultimately sold on December 9, 2004 to satisfy the debt.
The plaintiffs contend that the proceeds from the sale of the real estate was more than sufficient to satisfy the obligations owed to the defendants, and they assert that the defendants owe them a sum of money that represents the excess proceeds of the foreclosure sale after the debt was satisfied and all fees and expenses were paid. The plaintiffs assert that the defendants breached the mortgage contract and interfered with a contractual agreement by seizing the life insurance policy and personal property before the foreclosed real estate was sold. The plaintiffs also assert that the emotional distress caused by the seizures of the life insurance policy and the personal property of the plaintiffs caused the suicide of Thomas M. Miller.
After defendants Beal Bank and LPP removed this action to this Court, the Court issued a standing order requiring the submission of information regarding removal on November 21, 2005, ordering Beal Bank and LPP to respond within seven days with information regarding removal. Beal Bank and LPP filed a response on December 2, 2005, eight days after service of the order. The plaintiffs filed a motion to remand in this Court on December 12, 2005, arguing that the Court should remand the case because Beal Bank and LPP failed to respond to the standing order within the designated time. The defendants have filed a response, asserting that their response to the standing order was timely and that the plaintiff's motion for remand failed to comply with court rules.
II.
As noted earlier, the plaintiffs are citizens of Michigan. Defendant Beal Bank is a citizen of Texas. Defendant LPP is a limited partnership with its principal place of business in Texas; its general partner is a Texas corporation and its limited partner is a Nevada corporation. Sloan, the court-appointed receiver, is a citizen of Michigan.
Title 28, section 1441(a) of the United States Code permits defendants in civil actions to remove cases originally filed in state courts to federal district courts where the district court would have had original jurisdiction. Cases may be removed under federal question jurisdiction or on the basis of diversity of citizenship. See 28 U.S.C. § 1441(b). The plaintiffs have not alleged a federal cause of action in their complaint; therefore, removal is proper only if this Court should have had original jurisdiction based on diversity of citizenship.
It is axiomatic that federal diversity jurisdiction exists only when "no plaintiff and no defendant are citizens of the same state." Jerome-Duncan, Inc. v. Auto-By-Tel, L.L.C., 176 F.3d 904, 907 (6th Cir. 1999) (citing United States Fidelity Guar. Co. v. Thomas Solvent Co., 955 F.2d 1085, 1089 (6th Cir. 1992)). Therefore, complete diversity of citizenship must exist "both at the time that the case is commenced and at the time that the notice of removal is filed." Ibid. (citing Easley v. Pettibone Mich. Corp., 990 F.2d 905, 908 (6th Cir. 1993). For the purpose of ascertaining jurisdiction, a corporate entity "shall be deemed to be a citizen of any State by which it has been incorporated and of the State where it has its principal place of business." 28 U.S.C. § 1332(c) (defining corporate citizenship for "this section and section 1441 of this title").
An exception to the complete diversity rule is found in the doctrine of fraudulent joinder. "When a non-diverse party has been joined as a defendant, then in the absence of a substantial federal question the removing defendant may avoid remand only by demonstrating that the non-diverse party was fraudulently joined." Jerome-Duncan, 176 F.3d at 907 (quoting Batoff v. State Farm Ins. Co., 977 F.2d 848, 851 (3d Cir. 1992)). Establishing that joinder of a party is "fraudulent" requires no proof of the plaintiff's actual motive. See 16 Moore's Fed. Prac. § 107.14[2][c] (noting that "[t]he term 'fraudulent joinder' is a bit misleading because it requires neither a showing of fraud nor joinder in one sense"). Rather, the thrust of the inquiry is "whether [the plaintiff] had at least a colorable cause of action against [the non-diverse defendant] in the Michigan state courts." Jerome-Duncan, 176 F.3d at 907 (citing Alexander v. Electronic Data Sys. Corp., 13 F.3d 940, 949 (6th Cir. 1994)).
The federal court looks to state law to determine whether a plaintiff states "a colorable cause of action" against the non-diverse defendant. Ibid. Under Michigan law, "leave of court must be obtained before bringing a lawsuit against a court-appointed receiver." Resolution Trust Corp. v. Venus Plaza Assocs., 228 Mich. App. 357, 359, 579 N.W.2d 99, 100 (1998). In Michigan, bad faith is a necessary element of a claim against a court-appointed receiver; a plaintiff must allege the receiver's bad faith for a court to grant leave to sue the receiver. Id. at 359-61.
The Court believes that the defendants have demonstrated that defendant Sloan was fraudulently joined. On December 9, 2005, the Saginaw County Circuit Court denied the plaintiffs' motion for leave to sue defendant Sloan because the plaintiffs failed to show an element of bad faith required by Michigan law. The plaintiffs, therefore, have no "colorable cause of action" against the Michigan defendant. Under those circumstances, the fraudulent joinder rule excuses the lack of complete diversity, and the matter was properly removed to this Court.
The plaintiffs' motion to remand is based solely on the failure of defendants Beal Bank and LPP to file their response to the Court's standing order within seven days. Beal Bank and LPP assert that their response was timely because: (1) "[p]ursuant to F.R.C.P. 6(a), the date of receipt is not counted"; (2) it is their understanding that this Court was closed on November 25, 2005 (the day after Thanksgiving), and presumably the defendants believe that day should count as a holiday; and (3) they are allowed an additional three days to respond pursuant to F.R.C.P. 6(e) where a party is served by electronic means pursuant to F.R.C.P. 5(b)(D).
The defendants' first argument is simply incorrect. Federal Rule of Civil Procedure 6(a) states, in part: "the day of the act, event, or default from which the designated period of time begins to run shall not be included. The last day of the period so computed shall be included. . . ." Nothing in the Rule provides that the day the Court receives the filing, or the day the party received the Court's order, is not included in the computation of the time period.
The defendant's second argument is similarly unsupported by the Rule. Federal Rule of Civil Procedure 6(a) states,
When the period of time prescribed or allowed is less than 11 days, intermediate Saturdays, Sundays, and legal holidays shall be excluded in the computation. As used in this rule and in Rule 77(c), "legal holiday" includes New Year's Day, Birthday of Martin Luther King, Jr., Washington's Birthday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans' Day, Thanksgiving Day, Christmas Day, and any other day appointed as a holiday by the President or the Congress of the United States, or by the state in which the district court is held.
Fed.R.Civ.P. 6(a). The day after Thanksgiving is not included in this list.
However, the defendants' third ground for relief has merit. Because the Court's standing order was served electronically on November 21, 2005, the defendants were allowed three additional days to file a response pursuant to Fed.R.Civ.P. 6(e) and 5(b)(2)(D). Federal Rule of Civil Procedure 6(e) provides that three additional days are added to the prescribed period for a party to act if the party is served under Rule 5(b)(2)(D), the rule for electronic service. Because the defendants had three additional days to respond, their response was considered timely.
III.
The Court finds that the plaintiffs have not stated a colorable claim against defendant Sloan because prior leave of court was not obtained before suit was filed. Sloan will be dismissed as a defendant. For the same reason, the fraudulent joinder rule renders diversity complete.Accordingly, it is ORDERED that the plaintiffs' motion to remand [dkt # 14] is DENIED.
It is further ORDERED that Michael J. Sloan and Associates is DISMISSED as a party defendant in this action.
It is further ORDERED that the parties appear before the Court on February 9, 2006 at 10:00 a.m. for a case management and scheduling conference. COUNSEL shall prepare and serve on opposing counsel and Judge Lawson's chambers, ON OR BEFORE February 2, 2006, a short statement, which:
• Summarizes the background of the action and the principal factual and legal issues;
• Outlines the proposed discovery;
• Describes any outstanding or anticipated discovery disputes, and the basis you have for any objection;
• Proposes an appropriate management plan, including a schedule setting discovery cut-off and trial dates.
Counsel are encouraged to discuss their statements prior to the Status and Scheduling Conference. This statement shall not be filed with the Clerk of the Court. If counsel have met pursuant to Fed.R.Civ.P. 26(f), your proposed discovery plan may be submitted in lieu of these statements, supplemented as necessary to provide the above information.
Please be prepared to discuss the following at the Scheduling Conference,:
A. The issues and narrowing the issues;
B. Subject matter jurisdiction;
C. Relationship to other cases;
D. Necessity of amendments to pleadings, additional parties, third-party complaints, etc.;
E. Settlement, including alternative dispute resolution;
F. Progress of discovery (counsel are instructed to commence significant discovery prior to the conference);
G. Issues which may appropriately be resolved by motion; and
H. Estimated trial length.
Counsel are advised to bring their calendars for the scheduling of dates.