Civil Procedure – Court finds diversity after ignoring fraudulently joined party

Where a plaintiff attempting to stave off foreclosure proceedings argued the case was improperly removed to federal court, because the plaintiff and the substitute trustee defendant were both citizens of Virginia, this argument was rejected. The substitute trustee was fraudulently joined or is a nominal party. As such, once its citizenship was ignored, there was complete diversity.

Background

Patrick Edmonds, as heir and administrator of the Estate of Marion Edmonds, brought this case in state court alleging breach of contract and seeking a preliminary injunction after First Horizon Bank denied loss mitigation and initiated foreclosure proceedings. After removing to this court based on diversity jurisdiction, First Horizon moved to dismiss the case, and the plaintiff moved to remand.

Remand

A court simultaneously faced with a motion to remand and a motion to dismiss must first assess the motion to remand and may only consider the motion to dismiss after determining it has subject matter jurisdiction over the claim.

The plaintiff, as Administrator of the Estate of Marion Edmonds, is a citizen of the Commonwealth of Virginia. First Horizon is a citizen of Tennessee. First Horizon argues that there is complete diversity in this case because the substitute trustee — a citizen of Virginia — has been fraudulently joined or is a nominal party. The court agrees.

The substitute trustee is a fraudulently joined or nominal party because there is no reasonable possibility that the plaintiff can establish a cause of action against it. The substitute trustee is not a party to the relevant contracts. Moreover, the substitute trustee does not serve a role with respect to loss mitigation applications, nor does it determine when to foreclose on a property. The substitute trustee’s only role is to manage the foreclosure process at the direction of the lender.

The complaint only vaguely alleges in conclusory fashion that the substitute trustee violated its duty of impartiality. Moreover, the foreclosure was cancelled. With respect to the claim for lack of authority to foreclose, courts in similar cases have categorically rejected claims that a cause of action may be established under either lack of authority to foreclose or wrongful foreclosure theories.

In addition to seeking $74,000 in compensatory damages, the plaintiff seeks to enjoin First Horizon and the substitute trustee from foreclosing on the subject property. First Horizon submitted evidence that the subject property is valued at approximately $209,400. Even using the uncontested amount of the loan balance (approximately $69,000) to measure the value of the claim for injunctive relief, that amount, when added to the $74,000 in damages sought and the additional costs, easily exceeds $75,000. Therefore, the amount in controversy requirement is met.

Dismiss

First Horizon argues that this case should be dismissed for failure to state a claim because, although the complaint alleges breach of contract by First Horizon, it fails to allege facts showing or allowing for the inference that First Horizon owed the plaintiff any contractual duty to review or approve his request for a loan modification. The court agrees.

Plaintiff’s motion to remand denied. Defendant’s motion to dismiss granted.

The Estate of Marion Edmonds v. First Horizon Bank, Case No. 2:26-cv-203, June 1, 2026. EDVA at Norfolk (Walker). VLW 026-3-245. 14 pp.

Full-Text Opinion
VLW 026-3-245