Hien Pham v. Bank of New York
856 F. Supp. 2d 804
E.D. Va.2012Background
- Pham and Monges are Virginia residents whose Burke property is secured by a Deed of Trust naming MERS as nominal beneficiary and Wittstadt as substitute trustee; BNY is the noteholder.
- The loan originally secured for 350,000 was assigned to a securitization trust with BNY as indenture trustee; Encore purportedly held the original lender position.
- Default occurred in 2009, triggering foreclosure proceedings that plaintiffs sought to halt via prior state-court actions which were dismissed or not resolved.
- In November 2011, plaintiffs filed the instant state-court action against BNY, MERS, Wittstadt, and an unnamed purchaser, asserting four state-law claims including declaratory judgments, quiet title, and wrongful foreclosure.
- BNY removed the case to federal court based on diversity; plaintiffs challenged diversity arguing fraudulent joinder of non-diverse defendants MERS and Wittstadt.
- The district court held that fraudulent-joinder doctrine applies, disregarding MERS and Wittstadt for jurisdictional purposes, and dismissed all claims under Rule 12(b)(6); remand was denied.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether removal was proper under fraudulent joinder | Pham argues no complete diversity because MERS and Wittstadt are non-diverse. | BNY argues fraudulent joinder allows disregarding non-diverse defendants for diversity. | Removal proper; non-diverse defendants disregarded for jurisdiction. |
| Whether plaintiffs state a claim against the noteholder and related parties | Pham contends BNY/MERS/Wittstadt lack authority and the Deed of Trust was unenforceable. | BNY, MERS, Wittstadt rely on Virginia law authorizing noteholders and trustees to foreclose when properly secured. | Claims fail; Virginia law and Horvath authority foreclose challenges to authority, quiet title, and wrongful foreclosure fail. |
| Whether the court has subject-matter jurisdiction over the action | Remand is required due to lack of complete diversity and lack of amount in controversy. | Diversity exists after disregarding non-diverse defendants; amount in controversy exceeded $75,000. | Subject-matter jurisdiction exists; remand denied. |
| Whether Virginia law supports a 'show me the noteholder's authority' theory | A noteholder cannot foreclose without proving authority; MERS/Wittstadt should be scrutinized. | Virginia law allows possession of the note to confer authority to enforce and foreclose; no show-me-the-note requirement. | No, such theories lack merit; noteholder authority is sufficient. |
| Whether the complaint plausibly states actionable claims under Rule 12(b)(6) | Claims allege defects in assignment and authority render foreclosure improper. | Documents and relationships show valid authority and proper functioning under the Deed of Trust. | Dismissal warranted; no plausible claims survive. |
Key Cases Cited
- Horvath v. Bank of New York, N.A., 641 F.3d 617 (4th Cir.2011) (noteholder authority to enforce under Virginia law when note is transferred)
- Mayes v. Rapoport, 198 F.3d 457 (4th Cir.1999) (fraudulent-joinder doctrine allows jurisdiction by disregarding nondiverse defendants)
- Hartley v. CSX Transp. Inc., 187 F.3d 422 (4th Cir.1999) (no possibility standard for fraudulent-joinder; needs glimmer of hope)
- Great Plains Trust Co. v. Morgan Stanley Dean Witter & Co., 313 F.3d 305 (5th Cir.2002) (fraudulent-joinder analysis described)
- Gallant v. Deutsche Bank Nat’l Trust Co., 766 F. Supp. 2d 714 (W.D. Va.2011) (Virginia non-judicial foreclosure law and show-me-the-note notion contrasted)