Hsbc Bank USA, National Association, As Indenture Trustee For Peoples Choice Home Loan Securities Trust Series 2005-2 v. Old Republic National Title Insurance Company

• Court: District Court, D. Nevada
• Decided: December 15, 2020
• Docket: 2:20-cv-01838
• Status: Unknown

Opinion

1 UNITED STATES DISTRICT COURT 2 DISTRICT OF NEVADA 3 HSBC BANK USA, NATIONAL Case No.: 2:20-cv-01838-APG-VCF ASSOCIATION, AS INDENTURE 4 TRUSTEE FOR PEOPLE’S CHOICE HOME Order Granting Motion to Remand and LOAN SECURITIES TRUST SERIES 2005- Denying Motion for Fees and Costs 5 2, [ECF Nos. 13, 14] 6 Plaintiff

7 v.

8 OLD REPUBLIC NATIONAL INSURANCE GROUP, INC.; OLD REPUBLIC 9 NATIONAL TITLE INSURANCE COMPANY; OLD REPUBLIC TITLE 10 COMPANY OF NEVADA, INC.; DOE INDIVIDUALS I through X; and ROE 11 CORPORATIONS XI through XX, inclusive,

12 Defendants

13 Defendant Old Republic National Title Insurance Company (Old Republic) removed this 14 case to this court before any of the defendants were served with process. Plaintiff HSBC Bank 15 USA, National Association (HSBC) moves to remand the case to state court, claiming that 16 removal is barred by the forum defendant rule of 28 U.S.C. § 1441(b)(2). The issue presented is 17 whether a non-forum defendant may remove a case before any defendant was served when one 18 of the defendants is a citizen of the forum state. Because removal of this case was premature, I 19 grant the motion and remand the case. 20 PROCEDURAL POSTURE 21 HSBC filed this action in state court on October 1, 2020. HSBC sued Old Republic, Old 22 Republic National Title Insurance Group, Inc., and Old Republic Title Company of Nevada, Inc. 23 1 (Old Republic Nevada). Old Republic Nevada is the only defendant that is a Nevada entity. ECF 2 No. 1 at 2. 3 The day after the complaint was filed, Old Republic removed the case to this court. None 4 of the defendants had been served when the case was removed. This tactic of removing a

5 diversity case before a forum defendant has been served is termed a “snap removal.” The goal is 6 to avoid the bar against removal that exists when any defendant “properly joined and served” is a 7 forum defendant. 28 U.S.C. § 1441(b)(2). HSBC now moves to remand, arguing that removal 8 was improper because Old Republic Nevada is a forum defendant and Old Republic’s snap 9 removal violated § 1441(b)(2). Old Republic responds that because Old Republic Nevada had 10 not been served, § 1441(b)(2) does not preclude removal. 11 ANALYSIS 12 “Federal courts are courts of limited jurisdiction. . . . It is to be presumed that a cause lies 13 outside this limited jurisdiction, and the burden of establishing the contrary rests upon the party 14 asserting jurisdiction.” Corral v. Select Portfolio Servicing, Inc., 878 F.3d 770, 773–74 (9th Cir.

15 2017) (internal quotations and citation omitted). This burden on a removing defendant is 16 especially heavy because “[t]he removal statute is strictly construed, and any doubt about the 17 right of removal requires resolution in favor of remand.” Id. (citations omitted); see also Gaus v. 18 Miles, Inc., 980 F.2d 564, 566 (9th Cir. 1992) (citing Libhart v. Santa Monica Dairy Co., 592 19 F.2d 1062, 1064 (9th Cir. 1979)) (“Federal jurisdiction must be rejected if there is any doubt as 20 to the right of removal in the first instance.”). 21 A. Old Republic Nevada Is Not a Sham Defendant. 22 The forum defendant rule bars removal based on diversity jurisdiction “if any of the 23 parties in interest properly joined and served as defendants is a citizen of the State in which such 1 action is brought.” 28 U.S.C. § 1441(b)(2). Old Republic argues I should ignore Old Republic 2 Nevada for removal purposes because it is a sham defendant named solely to invoke the forum 3 defendant rule. Old Republic contends that “[a]ll of HSBC’s claims are based on the subject 4 policy of title insurance” issued by Old Republic. ECF No. 1 at 4. Old Republic Nevada is an

5 agent, not an insurer, and thus has no contractual or legal obligation to indemnify HSBC under 6 that policy. See ECF No. 17 at 15-21. HSBC responds that it is asserting claims and allegations 7 against Old Republic Nevada that go beyond the policy. 8 “[U]nder the fraudulent-joinder doctrine, joinder of a non-diverse defendant is deemed 9 fraudulent, and the defendant’s presence in the lawsuit is ignored for purposes of determining 10 diversity, if the plaintiff fails to state a cause of action against a resident defendant, and the 11 failure is obvious according to the settled rules of the state.” Weeping Hollow Ave. Tr. v. 12 Spencer, 831 F.3d 1110, 1113 (9th Cir. 2016) (internal quotation marks and alterations omitted). 13 “Fraudulent joinder must be proven by clear and convincing evidence.” Hamilton Materials, Inc. 14 v. Dow Chem. Corp., 494 F.3d 1203, 1206 (9th Cir. 2007).

15 HSBC’s complaint asserts potentially valid claims against Old Republic Nevada. HSBC 16 alleges that its predecessor negotiated with Old Republic Nevada to obtain a title policy, that Old 17 Republic Nevada undertook an obligation to provide that policy, and that Old Republic Nevada 18 represented that the policy would cover losses caused by the lien that gave rise to this dispute. 19 ECF No. 1-1 ¶ 43; see also id. ¶ 67 (Old Republic Nevada is “responsible for providing coverage 20 that insured the Deed of Trust was in first position over all other liens”);1 id. ¶ 164 (“Old 21

1 HSBC attaches to its motion its predecessor’s Closing Instructions to Old Republic Nevada in 22 connection with the underlying loan covered by the title policy. ECF No. 13-3. Old Republic Nevada is instructed to obtain a title policy containing specific endorsements. This document 23 supports HSBC’s allegation that Old Republic Nevada undertook contractual obligations that arose outside of the policy itself. 1 Republic Nevada knew or had reason to know that HSBC’s predecessor purchased the Policy 2 with the expectation that such coverage would be provided.”); id. ¶¶ 72, 110 (alleging Old 3 Republic Nevada procured the policy); id. ¶ 133 (“When the Policy was issued, it was the intent 4 of HSBC’s predecessor-in-interest . . . and Old Republic Nevada that Form 100 and Form 115.2

5 would provide coverage . . . .”); id. ¶ 178 (“Old Republic Nevada . . . decided which 6 endorsements should be issued with the Policy.”); id. ¶¶ 178-183, 191-94 (regarding 7 misrepresentations by Old Republic Nevada). HSBC asserts deceptive trade practices and 8 consumer fraud claims against Old Republic Nevada for “knowingly misrepresenting” the 9 coverage that HSBC’s predecessor negotiated for. Id. ¶¶ 173-202.2 10 While these claims and allegations may not be pleaded as clearly as possible, Old 11 Republic has not shown by clear and convincing evidence that they obviously fail to assert 12 claims against Old Republic Nevada under Nevada law. Old Republic focuses on the obligations 13 under the title policy, but it ignores HSBC’s non-contractual claims and allegations regarding 14 Old Republic Nevada’s duties in procuring the policy, misrepresentations in connection with

15 performing those duties, and violations of Nevada’s deceptive trade practices statutes. Old 16 Republic Nevada is therefore not a sham defendant. Because it is a forum defendant, 17 § 1441(b)(2) applies here. 18 B. Old Republic’s Snap Removal Was Improper Under 28 U.S.C. § 1441(b)(2). 19 Old Republic next argues that even if Old Republic Nevada is a legitimate defendant, it 20 had not been served at the time of removal. Thus, Old Republic contends that § 1441(b)(2) is not 21 a bar to removal because Old Republic Nevada had not been “properly joined and served” as 22

23 2 HSBC also alleges that Old Republic Nevada is liable as the alter ego of the insurer under the Policy. Because HSBC alleges other viable claims against Old Republic Nevada, I need not address whether the alter ego allegation is viable under Nevada law. 1 required under the statute. HSBC responds that snap removals like this violate the purpose of 2 § 1441(b)(2), which is to preserve a plaintiff’s choice of a state court forum by suing a proper 3 forum defendant. The question is thus whether a non-forum defendant is permitted to remove a 4 diversity case before any defendants have been served.

5 The plain language of § 1441(b)(2) does not answer the question, as evidenced by the 6 number of courts reaching different conclusions on whether snap removal is permitted under the 7 statute. See Gentile v. Biogen Idec, Inc., 934 F. Supp. 2d 313, 317-18 (D. Mass. 2013) (collecting 8 cases). “The question has deeply divided district courts across the country.” Id. at 315. 9 In Gentile, Judge Woodlock held that § 1441(b)(2)’s plain language prohibits snap 10 removal because it assumes that at least one defendant has been served before removal. Judge 11 Woodlock was interpreting the prior version of § 1441(b)(2), which was applicable to the facts of 12 that case. That version stated that an action founded on diversity of citizenship “shall be 13 removable only if none of the parties in interest properly joined and served as defendants is a 14 citizen of the State in which such action is brought.”3 In the phrase “none of the parties in

15 interest properly joined and served,” the word “none” functions as a pronoun and means “not 16 any.” 934 F. Supp. 2d at 318. 17 “Any,” in turn, means “one or more indiscriminately from all those of a kind.” . . . Inherent in the definition is some number of the “kind” from which the “one or 18 more” can be drawn. Accordingly, the use of “none” and definite article “the” when referring to “parties” assumes that there is one or more party in interest that 19 has been properly joined and served already at the time of removal, among which may or may not be a forum-state defendant. Thus, section 1441(b) conditioned 20 removal on some defendant having been served.

21 22

3 The statute was amended in 2011 to its present language. Judge Woodlock found that “the 23 amendments did not materially change the relevant language of the statute.” 934 F. Supp. 2d at 316 n.2. 1 Id. (internal citation omitted). Judge Woodlock notes that the current version of the statute— 2 “any of the parties” instead of “none of the parties”—has the same meaning. “[T]he statute 3 assumes at least one party has been served; ignoring that assumption would render a court’s 4 analysis under the exception nonsensical and the statute’s use of ‘any’ superfluous.” Id. Thus, a

5 “basic assumption embedded in the statute [is] that a party in interest had been served prior to 6 removal . . . .” Id. This interpretation precludes snap removals. 7 While this interpretation is not the only one possible, I agree it is the most cogent.4 8 Reasonable jurists have interpreted this statute differently, and the fact that “[d]istrict courts are 9 in disarray on the question”5 confirms that the statute’s language is ambiguous. I thus “look to 10 ‘canons of construction, legislative history, and the statute’s overall purpose to illuminate 11 Congress’s intent.’” Moran v. Screening Pros, LLC, 943 F.3d 1175, 1183 (9th Cir. 2019) 12 (quoting Jonah R. v. Carmona, 446 F.3d 1000, 1005 (9th Cir. 2006)). 13 To confirm the validity of his interpretation, Judge Woodlock examined the history of the 14 removal doctrine and the “properly joined and served” language. Gentile, 934 F. Supp. 2d at

15 319-21. “The removal power, and by extension the forum defendant rule, is founded on the 16 basic premise behind diversity jurisdiction itself, [which] was designed to protect non-forum 17 litigants from possible state court bias in favor of forum-state litigants.” Id. at 319. Forum 18 defendants presumably do not need that protection from local bias, so § 1441(b)(2) protects the 19 plaintiff’s choice of a state court forum where a forum defendant is a proper party to the case. Id. 20 There is scant legislative history to help interpret the phrase “properly joined and served.” 21 Id. But it seems clear from relevant caselaw that the purpose “was to prevent plaintiffs from 22 4 My colleague Judge Mahan agrees. See Carrington Mortgage Services, LLC v. Ticor Title of 23 Nevada, Inc., No. 20-cv-00699-JCM-NJK, 2020 WL 3892786 at *3 (D. Nev. July 10, 2020). 5 Gentile, 934 F. Supp. 2d at 316. 1 defeating removal through improper joinder of a forum defendant; incomplete service appears to 2 have been included as a means of identifying and policing such abuse by proxy.” Id. at 319-20. 3 The goal was to thwart gamesmanship by plaintiffs who joined forum defendants with no intent 4 of ever serving them.

5 Snap removal, on the other hand, allows gamesmanship by defendants who are 6 sophisticated and have sufficient resources (or suspicion of impending litigation) to monitor 7 court filings and immediately remove a case before a forum defendant can be served. This 8 practice has become more prevalent with the advent of modern technology that allows near-real- 9 time monitoring of dockets across the country. Congress would not have wanted to stop 10 gamesmanship by plaintiffs by allowing gamesmanship by defendants. 11 The purposes underlying § 1441(b)(2) are better served by disallowing removal before 12 any defendant is served. The plaintiff can preserve its ability to remain in state court by serving 13 the forum defendant first and without delay. The non-forum defendant may still argue that the 14 forum defendant is a sham who should be disregarded for purposes of removal. See Gentile, 934

15 F. Supp. 2d at 322-23. And this interpretation is consistent with § 1441(b)(2)’s plain language. 16 Id. at 323. 17 Here, Old Republic’s removal was premature because no defendant had been served. As 18 a result, I must remand the case to state court. 19 C. HSBC Is Not Entitled to Recover Its Fees and Costs. 20 HSBC also moves for an award of its fees and costs incurred as a result of Old Republic’s 21 removal. ECF No. 14. While I find that removal was improper, the courts are in disarray on this 22 issue, so removal was not “objectively unreasonable.” Patel v. Del Taco, Inc., 446 F.3d 996, 999 23 1} (9th Cir. 2006). Old Republic did not act in bad faith or frivolously in removing the case. I deny 2|| HSBC’s motion for fees and costs. 3], CONCLUSION 4 I THEREFORE ORDER that HSBC’s motion to remand (ECF No. 13) is granted. This 5|| case is remanded to the state court from which it was removed for all further proceedings. 6 I FURTHER ORDER that HSBC’S motion for its fees and costs (ECF No. 14) is denied. 7 The Clerk of the Court is instructed to close this case. 8 DATED this 15th day of December, 2020. 9 (EK 10 ANDREW P. GORDON UNITED STATES DISTRICT JUDGE 11 12 13 14 15 16 17 18 19 20 21 22 23