John K. Reed v. Ohio Savings Bank
2:16-cv-06610
C.D. Cal.Dec 6, 2016Background
- In 2005 Reed borrowed $999,990 secured by a deed of trust on his Santa Barbara home; he later defaulted.
- FDIC, as receiver for Ohio Savings Bank (OSB), transferred the note/deed to New York Community Bank (NYCB) in a 2010 assignment; NYCB recorded a trustee’s sale notice in 2011.
- Reed pursued bankruptcy and state-court actions between 2011 and 2016, including a 2011 bankruptcy adversary proceeding that led the bankruptcy court to void a junior Wells Fargo lien based on Reed’s position that the NYCB lien was valid.
- Reed filed the present state-court complaint in July 2016 challenging the validity of the 2010 assignment and added Aldridge Pite, LLP (AP), a California citizen, as a defendant; defendants removed to federal court asserting diversity jurisdiction.
- Defendants argued AP was fraudulently joined to destroy diversity; the district court agreed, dismissed AP, retained diversity jurisdiction over NYCB, and found Reed judicially estopped from attacking the NYCB deed of trust.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether federal court has diversity jurisdiction / whether AP was fraudulently joined | Reed contends parties are not completely diverse because AP is a California citizen and properly joined | Defendants say AP was fraudulently joined solely to destroy diversity and has no plausible liability here | Court held AP fraudulent joined and disregarded its citizenship; remand denied (federal diversity jurisdiction retained) |
| Whether Reed can challenge validity of 2010 assignment after prior bankruptcy filings | Reed argues Yvanova and other defects allow challenge to the assignment now | NYCB argues Reed successfully took the opposite position in bankruptcy and persuaded the court, so judicial estoppel bars the challenge | Court held judicial estoppel applies and dismissed Reed’s complaint against NYCB without leave to amend |
| Whether other defenses (res judicata, statute of limitations, failure to state a claim) bar Reed’s suit | Reed did not directly contest these in opposition as primary grounds | NYCB asserted multiple affirmative defenses as alternative bases for dismissal | Court relied primarily on judicial estoppel to dismiss and noted other defenses but did not need to reach them |
| Whether leave to amend should be granted | Reed sought chance to amend given Yvanova development | NYCB argued amendment would be futile because of judicial estoppel and prior bankruptcy rulings | Court denied leave to amend as futile |
Key Cases Cited
- Ritchey v. Upjohn Drug Co., 139 F.3d 1313 (9th Cir. 1998) (fraudulent-joinder doctrine permits ignoring nondiverse defendants)
- Mercado v. Allstate Ins. Co., 340 F.3d 824 (9th Cir. 2003) (standard for fraudulent joinder: plaintiff fails to state a claim against resident defendant)
- Ashcroft v. Iqbal, 556 U.S. 662 (U.S. 2009) (pleading standard for plausibility under Rule 12(b)(6))
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (U.S. 2007) (establishes pleading standard requiring more than conclusory allegations)
- New Hampshire v. Maine, 532 U.S. 742 (U.S. 2001) (doctrine and purposes of judicial estoppel)
- Ah Quin v. County of Kauai Dept. of Transp., 733 F.3d 267 (9th Cir. 2013) (application of judicial estoppel in the bankruptcy context)