525 F. App'x 878
10th Cir.2013Background
- Brazell, a Utah resident, signed a Note secured by a deed of trust; MERS was the beneficiary and acted as nominee for Merrill Lynch, identified as the Lender.
- Waite, a Utah attorney, as successor trustee, filed a Notice of Sale indicating a public foreclosure sale for July 12, 2011, acting for the current beneficiary, U.S. Bank.
- Brazell filed four state-court claims challenging the foreclosure and the entities’ rights to enforce the Note; claims included unauthorized sale, lack of holders in possession, breach of trustee’s duty, and quiet title based on a split-note theory.
- Defendants removed to federal court based on diversity jurisdiction; Brazell later dismissed all parties except Waite and all claims except the § 57-1-23.5 claim against Waite; Brazell moved to remand.
- District court dismissed Waite with prejudice, treating him as non-diverse; Brazell challenged the prejudice dismissal under Rule 59(e).
- The appellate panel held Waite was fraudulently joined or a nominal party, the removal was proper, but the district court should have dismissed Waite without prejudice and remanded to modify the dismissal accordingly.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Was removal proper given Waite’s non-diverse status? | Brazell argues Waite’s presence destroyed diversity and removal was improper. | Waite contends his inclusion was proper due to asserted claims against him. | Removal was proper because Waite was fraudulently joined or a nominal party. |
| Whether Waite should be dismissed for lack of jurisdiction as a non-diverse party | Brazell maintains the district court should preserve remand or dismiss Waite without prejudice. | Waite argues the court can adjudicate the merits against him in federal court. | Waite should have been dismissed without prejudice; dismissal with prejudice was improper. |
| Did the district court err in applying the forum-defendant rule | Brazell seeks remand notwithstanding forum-state defendant. | Waite argues forum-defendant rule might bar removal. | Court did not apply the forum-defendant rule to block removal. |
| What remedy should follow the dismissal regarding Waite | Brazell seeks remand with proper disposition of Waite’s claim. | Waite argues the district court’s dismissal should stand. | Remand with instructions to modify Waite’s dismissal from with prejudice to without prejudice. |
Key Cases Cited
- Dodd v. Fawcett Pubs., Inc., 329 F.2d 82 (10th Cir. 1964) (fraudulent joinder when plaintiff joins resident defendant to prevent removal)
- Smoot v. Chicago, Rock Island and Pac. R.R. Co., 378 F.2d 879 (10th Cir. 1967) (court may look beyond pleadings to determine sham/fraudulent joinder)
- Lenon v. St. Paul Mercury Ins. Co., 136 F.3d 1365 (10th Cir. 1998) (real parties in interest; disregard nominal parties for diversity)
- Kruso v. Intl. Tel. & Tel. Corp., 872 F.2d 1416 (9th Cir. 1989) (merits of state-law claim not necessary to defeat removal; standing to remove)
- Albert v. Smith’s Food & Drug Ctrs., Inc., 356 F.3d 1242 (10th Cir. 2004) (affirmative duty related to removal when fraudulently joined)
- Five F, LLC v. Heritage Sav. Bank, 81 P.3d 105 (Utah App. 2003) (trustee’s duty of good faith under deed of trust)
- City of Colo. Springs v. Climax Molybdenum Co., 587 F.3d 1071 (10th Cir. 2009) (court’s duty to raise jurisdictional issues sua sponte when lacking)
- Lively v. Wild Oats Markets, Inc., 456 F.3d 933 (9th Cir. 2006) (forum-defendant rule not jurisdictional; waiver possible)