Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—NDCal: Mortgage Holder’s UCL Claims Remanded to State Court , (Mar 11, 2013)

By Jody Coultas, J.D.

A mortgage holder’s California Unfair Competition Law (UCL) claim against Wells Fargo Bank, N.A. was remanded to state court by the federal district court in San Francisco based on judicial economy, comity, fairness, and convenience (Perez v. Wells Fargo Bank, N.A., March 8, 2013, Spero, J.).

After the mortgage holder missed some payments, Wells Fargo offered a forbearance agreement under which it would agree to modify the loan if the mortgage holder made four required payments. The mortgage holder was unable to make the last two payments and Wells Fargo recorded a notice of default. The trustee sale was postponed a number of times pending consideration of the mortgage holder’s loan modification application. However, Wells Fargo sold the house to a third party, and the mortgage holder filed UCL claims alleging that Wells Fargo engaged in unfair and fraudulent business practices when it induced her to enter into the forbearance agreement as a means of curing a two-month delinquency. The mortgage holder also filed UCL claims against First American Loanstar Trustee Services LLC (Loanstar) based on the company’s misrepresentations concerning the trustee sale.

After the case was removed to federal court, the mortgage holder filed a motion to remand based on the lack of diversity jurisdiction or a federal question. The court had previously dismissed the mortgage holder’s only federal law claim, leaving only state law claims. Wells Fargo argued that there was complete diversity among the parties because it was a resident of South Dakota and that Loanstar was fraudulently joined.

Original jurisdiction may be based on diversity or the existence of a federal question. In cases where a federal claim that served as the basis for removal is eliminated, the district court has discretion to decline to exercise its supplemental jurisdiction and to remand the remaining state law claims to state court.

Because the claims raised no federal question and complete diversity was lacking, the court concluded that the claims should be remanded to state court. Loanstar was not a nominal party or fraudulently joined. The mortgage holder alleged that Loanstar’s status line contained a recorded message falsely stating that the trustee sale had been canceled causing loss of equity in the home, emotional distress, and loss of personal property. The claims against Loanstar were not nominal and Wells Fargo failed to show that the mortgage holder could not state the UCL claim against Loanstar. It was possible that Loanstar’s actions depressed the sale price of the home causing loss. Loanstar was a citizen of California, as was the mortgage holder. Therefore, complete diversity was lacking.

The court declined to exercise its supplemental jurisdiction over the claims and remanded the claims to state court. The trial date was not imminent and the court had not performed any substantial legal analysis that would need to be repeated by a state court. There would be no significant loss of judicial economy if this action were remanded. The complaint relied entirely on California law, so considerations of comity weigh in favor of granting remand. Moving the case to a state court would not cause any inconvenience.

The case is No. C-11-02279 JCS.

Attorneys: Ronald William Carter for Eugene Perez. M. Elizabeth Holt (Severson & Werson) for Wells Fargo Bank, N.A.

Companies: Wells Fargo Bank, N.A.; First American Loanstar Trustee Services LLC

Cases: StateUnfairTradePractices CaliforniaNews