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Considerations Regarding Removal to Federal Court: Defense Of Class Action Claims Alleging RESPA Violations Part III

Part III Considerations Regarding Removal to Federal Court

A lender that must defend itself against a class action alleging violations of RESPA may benefit from removing the case to federal court. A defendant may remove a case to federal court if there is any “separate and independent” claim subject to federal question jurisdiction: “A federal court has removal jurisdiction if the plaintiff’s claims are either exclusively federal or there is a separate and independent federal question. 28 U.S.C. § 1441. In order for a defendant to remove, the federal claims must appear on the face of plaintiff’s well-pleaded complaint. Tingey v. Pixley-Richards West, Inc., 953 F.2d 1124, 1129 (9th Cir. 1992).” Lyons v. Alaska Teamsters Emplr. Serv. Corp., 188 F.3d 1170, 1171 (9th Cir. 1999). A separate article considers removal under CAFA (Class Action Fairness Act of 2005).

In federal court, Rule 23 of the Federal Rules of Civil Procedure governs class actions. Federal courts examine the numerosity, commonality, and typicality of the plaintiff’s claims. The courts also consider whether separate lawsuits would create a risk of inconsistent adjudications that would require the defendant comply with incompatible directions. In state court, however, California Code of Civil Procedure section 382 governs class actions. The “community of interest” requirement for class certification in state court consists of three factors: (1) predominant common questions of law or fact; (2) class representatives with claims or defenses typical of the class; and (3) class representatives who can adequately represent the class. While the standards may appear to be substantively identical, they are quite different in practice. In my opinion, the federal law governing class actions is much better developed than California state law. It is also my opinion that a corporate defendant is well served to remove a case to federal court whenever possible.

Once removed, the federal court may, in its discretion, adjudicate the entire case, including state claims that could not be adjudicated under the federal court’s original jurisdiction. 28 U.S.C. § 1441(c). Removal is proper even if the plaintiff’ federal claim is meritless, see Barraclough v. ADP Auto. Claims Services, 818 F. Supp. 1310, 1312 (N.D. Cal. 1993), and removal is proper even if the relief the plaintiff seeks is unavailable under the federal claim, see Caterpillar Inc. v. Williams, 482 U.S. 386, 391, n.4 (1987).

With respect to RESPA claims, RESPA requires a lender to provide a HUD-1 or HUD-1A settlement statement to “clearly itemize all charges imposed upon the Borrower,” and that this settlement statement is required by 12 U.S.C. § 2603(a). A lender is required also to provide borrowers with “a Good Faith Estimate” (the “GFE”) to include “estimates of the amounts or ranges of all settlement costs likely to be incurred at the closing,” and the GFE is required by 12 U.S.C. § 2604(c) and Regulation X, 24 C.F.R. section 3500.7(a). Thus, if the Complaint alleges that the lender surprised borrowers with additional closing costs, then the basis of the lawsuit is an alleged violation of federal law: if the lender had disclosed properly all closing costs as required by RESPA and Regulation X, then the plaintiff would not have been injured.

It is well settled that RESPA claims are subject to removal. Sicinski v. Reliance Funding Corp., 461 F. Supp. 649, 650-51 (S.D. N.Y. 1978). In the face of a motion to remand, the defendants in Sicinski advanced three arguments, each of which the district court accepted:

First, 28 U.S.C. § 1441(a) gives them a right of removal ‘(e)xcept as otherwise expressly provided by Act of Congress’ . . . , and the jurisdictional sections of RESPA and TILA do not expressly bar removal. Second, when Congress has wanted to bar removal it has said so expressly . . . . Third, the weight of authority, including all decisions by District Courts in this Circuit, is against interpreting a concurrent-jurisdiction provision to bar removal . . . .

Sicinski, at 651 (citations omitted). The court agreed, and denied plaintiff’s motion to remand.

Sicinski was correct. Federal courts have original jurisdiction in cases involving alleged RESPA violations. See Dominguez v. Alliance, 226 F. Supp. 2d at 914 (“Our jurisdiction . . . was predicated on the federal RESPA claims. . . . Having disposed of all claims over which we had original jurisdiction, we decline to exercise our supplemental jurisdiction over the remaining state law claim.” (Italics added.)). Accord Ploog v. Homeside Lending, Inc.¸ 209 F.Supp. 2d 863, 867 (N.D. Ill. 2002) (RESPA claim “only claim over which the Court has original jurisdiction”); DeLeon v. Beneficial Const. Co., 998 F. Supp. 859, 867 (N.D. Ill. 1998).

In a recent federal case in California, the court upheld removal. In T & E Pastorino Nursery v. Duke Energy Trading & Marketing, 268 F. Supp. 2d 1240 (S.D. Cal. 2003), plaintiffs (energy customers) filed suits against electricity suppliers in state court for alleged unfair business practices regarding California’s wholesale energy market, pursuant to state law. Defendants (energy suppliers) removed the actions to federal court; plaintiffs moved to remand. The district court denied the motion, explaining at page 1245:

The principles encompassed in § 1441 and § 1331 are, thus, readily distilled into a single two-pronged test. Under that test, federal jurisdiction extends only over those cases in which a well-pleaded complaint establishes either (1) that federal law creates the cause of action, thereby conferring original jurisdiction to the court as described under § 1441, or (2) that the plaintiff’s right to relief necessarily depends on resolution of a substantial question of federal law, thereby conferring jurisdiction to the court under §1331.

T & E Pastorino Nursery stated that although the customers’ claims against electricity suppliers were premised on alleged violation of California’s unfair business practice laws, they were founded to some degree on the suppliers’ conduct in ancillary services market, which was governed by the field tariff of independent system operator (ISO) that operated an electricity grid under California’s restructured energy scheme; to the extent that the claims relied on an alleged breach of the suppliers’ obligations under ancillary services contracts, they came within the provisions of the Federal Power Act (FPA) granting federal courts exclusive jurisdiction over violations of the FPA and associated rules, regulations, and orders, and they were subject to removal. Thus, the court denied the motion for remand, even though it acknowledged that plaintiffs could prevail on their section 17200 claims without proving a violation of federal law.

If the plaintiffs’ right to relief depends on resolution of a substantial question of federal law such as whether the defendant violated RESPA and Regulation X over which the district court has original jurisdiction, then the gravamen of the Complaint is alleged violations of federal law. Federal courts would have original jurisdiction, and the matter may be properly removed.