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Corral v. Select Portfolio Servicing, Inc.

United States Court of Appeals, Ninth Circuit

December 27, 2017

Esperanza Corral; Diana Balgas, Plaintiffs-Appellants,
v.
Select Portfolio Servicing, Inc.; U.S. Bank, Defendants-Appellees.

          Argued and Submitted May 19, 2017 San Francisco, California

         Appeal from the United States District Court for the Northern District of California Edward M. Chen, District Judge, Presiding D.C. No. 3:15-CV-01542-EMC

          Anthony George Graham (argued), Graham & Martin LLP, Santa Ana, California, for Plaintiffs-Appellants.

          Thomas A. Woods (argued) and Bao M. Vu, Stoel Rives LLP, Sacramento, California, for Defendants-Appellees.

          Before: Kim McLane Wardlaw and Andrew J. Kleinfeld, Circuit Judges, and Cathy Ann Bencivengo, District Judge. [*]

         SUMMARY[**]

         Diversity Jurisdiction

         The panel reversed the district court's denial of a motion to remand, vacated the district court's order granting Select Portfolio Servicing, Inc.'s motion to dismiss, and directed that the case be remanded to state court, because the district court was without subject matter jurisdiction where the removing party, Select Portfolio, did not satisfy its burden of establishing the amount in controversy exceeded $75, 000 for purposes of diversity jurisdiction.

         Plaintiffs' complaint sought only a temporary stay of foreclosure pending review of a loan modification application pursuant to the California Homeowners Bill of Rights. The panel held that the value of the property or amount of indebtedness were not the amounts in controversy in such a circumstance. Because Select Portfolio only asserted these amounts in its notice of removal, the panel concluded that it had not established the requisite amount in controversy. The panel noted that parties seeking to establish diversity jurisdiction over such cases may still demonstrate that the amount in controversy requirement was satisfied using other measures, such as the transactional costs to the lender of delaying foreclosure or a fair rental value of the property during the pendency of the injunction; and possibly adding such amounts to any other compensatory damages sought by the plaintiff.

         Judge Kleinfeld dissented, and would affirm the district court. Judge Kleinfeld would hold that the district court correctly followed the rule in Garfinkle v. Wells Fargo Bank, 483 F.2d 1074, 1076 (9th Cir. 1973), that in a suit to enjoin foreclosure, the amount in controversy is the value of the property sought to be foreclosed.

          OPINION

          BENCIVENGO, DISTRICT JUDGE.

         This case requires us to decide how to measure the amount in controversy for the purpose of determining diversity subject matter jurisdiction when a complaint seeks only a temporary stay of foreclosure pending review of a loan modification application pursuant to the California Homeowners Bill of Rights ("HBOR"). We hold that the value of the property or amount of indebtedness are not the amounts in controversy in such a circumstance.

         BACKGROUND

         On March 15, 2013, Appellants Esperanza Corral and Diana Balgas (together, "Corral") received a notice of default on their mortgage on the residential property where Ms. Balgas lives (the "Property"). They then applied for a loan modification with the loan servicer, Appellee Select Portfolio Servicing, Inc. ("SPS").[1] In April 2014, while the loan modification application was pending, Corral received a Notice of Trustee Sale of the Property. Thereafter, Corral filed a lawsuit in the California Superior Court for Alameda County (the "First Action") and successfully moved for a temporary restraining order ("TRO") of the trustee sale. In December 2014, the parties reached a settlement, pursuant to which SPS agreed to wait thirty days following the dismissal of the First Action to receive Corral's submission of a completed application for a loan modification. The settlement agreement also provided that if SPS did not receive a completed application within thirty days, SPS reserved the right to pursue non-judicial foreclosure of the Property.

         On or around February 25, 2015, SPS scheduled a trustee sale for the Property for March 5, 2015. On March 3, 2015, Corral filed this lawsuit in California Superior Court for Alameda County, asserting claims for violation of HBOR and for violation of California's unfair competition law, California Business & Professions Code § 17200 et seq. The Superior Court issued a TRO enjoining the trustee sale, but it later denied Corral's motion for a preliminary injunction of the foreclosure sale.

         On April 3, 2015, SPS removed this lawsuit to the United States District Court for the Northern District of California. The notice of removal stated that the district court had diversity jurisdiction under 28 U.S.C. § 1332 because the parties are diverse and more than $75, 000 is in controversy. As for diversity, the notice stated that Corral and Balgas are citizens of California and SPS is a Utah corporation with its principal place of business in Utah. As for the amount in controversy, the notice stated that the amount in controversy requirement is satisfied because the Deed of Trust on the Property secured a $680, 000.00 promissory note and the unpaid balance and other charges on the promissory note at the time of the notice was $806, 512.74.

         The district court denied Corral's motion to remand. In its opinion, the district court relied exclusively on cases where the plaintiffs sought an indefinite injunction against foreclosure, to quiet title to the property in question, or to rescind their loans, and concluded that Corral's gains from the temporary injunction "would surely exceed $75, 000" in light of the value of the Property and amount of indebtedness.

         Corral also filed an amended complaint in the district court that added claims for breach of contract and breach of the implied covenant of good faith and fair dealing arising out of the settlement of the First Action. The amended complaint specified that the amount in controversy does not exceed $75, 000. On July 9, 2015, the district court granted SPS's motion to dismiss the amended complaint for failure to state a claim. Corral now timely appeals.

         STANDARD ...


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