Morshaeuser v. Citimortgage, Inc., 2:12-cv-02210

Background

Foreclosure proceedings were initiated on the Fos property in Covington, LA after Citi claimed ownership of the note and mortgage via MERS; the mortgage was assigned from Parish National Bank to MERS, then to Citi; the Foses fell behind on payments due to illness, Citi accelerated the loan and allegedly foreclosed contrary to the note terms; Citi represented by Raymond and Jackson & McPherson filed for executory process in January 2011 resulting in a sheriff's seizure; payoff quotes were issued and the Foses paid but the note was later marked cancelled and allegedly misrepresented as paid in full; a Lost Note Affidavit and Notarial Endorsement/Assignment of Mortgage were created in 2011, asserting MERS ownership and transferring the note to Citi; the plaintiffs filed suit in state court in July 2012 alleging malpractice, fraud, wrongful foreclosure, and related torts against Citi, Raymond, and Jackson & McPherson; Citi removed the case to federal court asserting diversity and potential federal questions, and plaintiffs moved to remand while Raymond and Jackson & McPherson moved to dismiss.]
The court granted remand denial, granted Raymond and Jackson & McPherson’s dismissal, and continued Citi’s Rule 12(b)(6) proceedings; the court also ordered supplemental briefs on prescription, wrongful foreclosure elements, and sufficiency of fraud pleading, with a hearing reset to November 7, 2012.
The court concluded that the Louisiana-adversary attorneys (Raymond and Jackson & McPherson) were improperly joined and thus disregarded their Louisiana citizenship for diversity purposes; the court dismissed claims against them for lack of a viable in-state duty by a non-client and found no plausible claim against them for malpractice or negligence; the court held that the plaintiffs fail to state plausible professional-negligence claims against these in-state defendants under Louisiana law.
The court held that Citi’s removal based on federal jurisdiction was not supported by a properly pleaded federal question or a viable basis to defeat complete diversity through improper joinder; the court denied remand and scheduled further proceedings, including prescription and wrongful-foreclosure elements, and noted the heavy burden on proving improper joinder.
The court noted that prescription and the precise elements of wrongful-foreclosure require supplemental briefing, and that the fraud claim must be evaluated for particularity with possibility of amendment.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Is Citi’s removal proper given diversity and possible improper joinder?	Plaintiffs claim Raymond and JM McPherson are improperly joined to manufacture diversity.	Citi argues complete diversity exists once in-state defendants are disregarded as improperly joined.	Yes; improper-joinder burden not met for in-state defendants; remand denied and diversity preserved.
Do Raymond and Jackson & McPherson state a viable claim for malpractice or negligence?	Plaintiffs allege Raymond failed duties and JM McPherson ran a foreclosure mill.	Non-clients cannot recover against adversary’s counsel for malpractice; allegations lack specific malice.	No plausible claim; non-clients cannot recover for negligence/malpractice of adversary’s counsel; dismissal granted.
Do Citi’s fraud/conversion/foreclosure claims survive Rule 12(b)(6) and prescription issues?	Fraud, wrongful foreclosure, and related claims stated; leave to amend possible.	Claims lack specificity and may be prescribed; need more briefing on elements and prescription.	Remain issues for supplemental briefing; dismissal not yet entered pending prescription and sufficiency analysis.
Is a remand appropriate given potential federal-question or other jurisdictional grounds?	Diversity may be lacking if improper joinder not established; remand appropriate.	Citigroup removal based on federal questions potentially applicable; but not adequately shown.	Remand denied; jurisdiction based on diversity upheld after improper-joinder analysis.
What further briefing is required on prescription, wrongful-foreclosure elements, and fraud particularity?	Requests clarity on prescription and pleading standards; amendment possible.	Agrees to allow supplemental briefing to resolve these issues.	Supplemental briefing ordered; hearing continued to November 7, 2012.

Key Cases Cited

Smallwood v. Illinois Cent. R.R. Co., Inc., 385 F.3d 568 (5th Cir. 2004) (test for improper joinder and diversity analysis; focus on joinder, not merits)
Travis v. Irby, 326 F.3d 644 (5th Cir. 2003) (standard for improper joinder—no reasonable basis to recover against in-state defendant)
Gill v. United States, ? (?) (placeholder)
Gasch v. Hartford Accident & Indem. Co., 491 F.3d 278 (5th Cir. 2007) (analysis of pleading standards and state-law claims under Iqbal/Twombly framework)
Iqbal v. Ashcroft, 556 U.S. 662 (Sup. Ct. 2009) (plausibility standard; two-pronged approach to Rule 12(b)(6) review)
Twombly v. Bell Atl. Corp., 550 U.S. 544 (Sup. Ct. 2007) (pleading must show facial plausibility; mere possibility insufficient)
Montalvo v. Sondes, 637 So.2d 127 (La. 1994) (Louisiana rule that non-clients cannot sue adversary’s attorney for malpractice absent intent to harm)
Rico v. Flores, 481 F.3d 234 (5th Cir. 2007) (proper joinder inquiry focuses on potential for recovery against in-state defendants)
Causey v. Sewell Cadillac-Chevrolet, Inc., 394 F.3d 285 (5th Cir. 2004) (incorporation of pleadings and public records in Rule 12(b)(6) analysis)