Virginia Lawyers Weekly VA Lawyers Weekly
Because the plaintiff stated a claim against the only defendant to share her citizenship – the substitute trustee that executed foreclosure on her home – the court lacked diversity jurisdiction, and remand to state court was required.
Background
Plaintiff Norma Gibbs’s claims stem from the foreclosure of a home. Her husband, Walter, purchased the property in 2005 and conveyed ownership to Norma in 2015, and died soon after. In early 2016, Gibbs defaulted on the loan, which was held by Defendant PHH Mortgage Association.
Gibbs alleges that PHH breached the deed of trust by providing a foreclosure notice of less than 30 days. She also alleges that Professional Foreclosure Corporation of Virginia, as substitute trustee, breached a fiduciary duty owed to her by failing to ensure that it was not wrongfully foreclosing.
After the Defendants removed the action to this court, Gibbs moved to remand on grounds that, because both she and PFC are citizens of Virginia, this court lacks subject-matter jurisdiction over the dispute. The defendants oppose remand and contend that PFC was fraudulently joined in order to destroy federal jurisdiction.
Diversity jurisdiction
The burden is on the party claiming fraudulent joinder to show that a claim could not be established against the non-diverse defendant. At this stage, the court’s inquiry is limited to determining if, under Virginia law, an action for fiduciary breach could possibly lie against PFC. If so, the court lacks jurisdiction.
The court’s analysis begins and ends with the case of Squire v. Va. Housing Dev. Auth., 287 Va. 507 (2014). There, the petitioner had a home loan secured by a deed of trust, which required the lender to arrange a face-to-face meeting with the borrower prior to foreclosing on the home. The petitioner defaulted, and the substitute trustee conducted a foreclosure sale. She sued, alleging that the substitute trustee breached a fiduciary duty by foreclosing when the lender had not attempted to arrange a face-to-face meeting. The supreme court held that the petitioner had sufficiently pled her claim.
The case at hand presents a remarkably similar situation. While the Defendants argue that the fiduciary duty at issue has been cabined by subsequent decisions in this court, there have been no subsequent supreme court decisions addressing the scope of Squire. This court is frequently required to answer unresolved questions of state law, but when the question at hand is whether or not diversity jurisdiction has been properly invoked, the court’s role is limited. The sole question is whether any factual or legal possibility exists whereby diversity jurisdiction would be improper. Based on Squire, it is possible that Virginia law supports a claim for fiduciary breach in these circumstances.
Remanded to state court.
Gibbs v. Fed. Nat’l Mortgage Ass’n, Case No. 3:18cv75, Apr. 4, 2018. EDVA at Richmond (Hudson). VLW No. 018-3-133, 8 pp.
