Vinod Sharma v. Hsi Asset Loan Obligation Trust ( 2022 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
VINOD SHARMA; VIJAY L. SHARMA, No. 20-16898
Plaintiffs-Appellants,
D.C. No.
v. 2:20-cv-00921-
JAM-KJN
HSI ASSET LOAN OBLIGATION
TRUST 2007-1, by Deutsche Bank
National Trust Company, solely and OPINION
expressly in its capacity as Trustee;
HSI ASSET SECURITIZATION
CORPORATION, by Deutsche Bank
National Trust Company, solely and
expressly in its capacity as Trustee,
Defendants-Appellees.
Appeal from the United States District Court
for the Eastern District of California
John A. Mendez, District Judge, Presiding
Submitted December 7, 2021 *
San Francisco, California
Filed January 25, 2022
*
The panel unanimously concludes this case is suitable for decision
without oral argument. See Fed. R. App. P. 34(a)(2).
2 SHARMA V. HSI ASSET LOAN OBLIGATION TRUST 2007-1
Before: Carlos F. Lucero, ** Sandra S. Ikuta, and
Lawrence VanDyke, Circuit Judges.
Opinion by Judge VanDyke
SUMMARY ***
Removal Jurisdiction
Reversing the district court’s dismissal of a wrongful
foreclosure action and remanding, the panel held that the
district court erred in denying plaintiffs’ motion to remand
the action to the state court from which it had been removed
to federal court by a party not named in the complaint.
The removing party argued that, as trustee for one of the
named defendants, it was entitled to remove the lawsuit
because it was the “real party defendant in interest.”
Disagreeing with the Second Circuit, the panel held that,
under the plain language of 28 U.S.C. § 1441(a), only a
named defendant may remove an action to federal court.
**
The Honorable Carlos F. Lucero, United States Circuit Judge for
the U.S. Court of Appeals for the Tenth Circuit, sitting by designation.
***
This summary constitutes no part of the opinion of the court. It
has been prepared by court staff for the convenience of the reader.
SHARMA V. HSI ASSET LOAN OBLIGATION TRUST 2007-1 3
COUNSEL
Vinod Sharma and Vijay L. Sharma, Elk Grove, California,
pro se Plaintiffs-Appellants.
Karin Dougan Vogel, Mark G. Rackers, and Melissa A.
Freeling, Sheppard Mullin Richter & Hampton LLP, San
Diego, California, for Defendants-Appellees.
OPINION
VANDYKE, Circuit Judge:
Vinod and Vijay Sharma appeal the district court’s
dismissal of their wrongful foreclosure action. We are asked
to resolve two issues on appeal: (1) whether the district court
erred by failing to remand this action when removed to
federal court by a party not named in the complaint (referred
to by the district court as an unnamed “real party defendant
in interest”), and (2) whether the district court erred in
dismissing the Sharmas’ claims as barred by res judicata.
We have jurisdiction pursuant to 28 U.S.C. § 1291, and
reverse the district court’s denial of the Sharmas’ motion to
remand. Because we direct the district court to remand this
case, we do not consider whether the Sharmas’ claims are
barred by res judicata.
BACKGROUND
This is the Sharmas’ second lawsuit alleging wrongful
foreclosure and other related claims stemming from the
foreclosure and subsequent sale of a single-family home in
Elk Grove, California. The Sharmas purchased the property
in July 2000 and refinanced in April 2007. A few years later,
the Sharmas defaulted on the loan and American Brokers
4 SHARMA V. HSI ASSET LOAN OBLIGATION TRUST 2007-1
Conduit initiated foreclosure proceedings and ultimately
sold the property to Deutsche Bank National Trust Company
(DBNTC) as Trustee for HSI Asset Loan Obligation Trust
2007-1.
The Sharmas filed their first wrongful foreclosure
lawsuit in state court on August 26, 2010, almost
immediately after the foreclosure. The state court dismissed
that action with prejudice on January 28, 2013, and an appeal
was dismissed on April 25, 2013. The Sharmas then vacated
the property and it was sold to a third party in December
2013, and sold again in 2016.
The Sharmas filed the instant lawsuit in California state
court on July 18, 2019, against HSI Asset Loan Obligation
Trust and HSI Asset Securitization Corporation. DBNTC, a
party not named in the Sharmas’ lawsuit, removed the
lawsuit to federal court on May 4, 2020. Shortly after
DBNTC removed, the Sharmas asked the district court to
remand the lawsuit. DBNTC countered that, despite not
being named as a defendant in the lawsuit, as trustee for HSI,
one of the named defendants, it was entitled to remove the
lawsuit because it was the “real party defendant in interest.”
The district court agreed with DBNTC and applied a
judicially-created exception to 28 U.S.C. § 1441(a), relying
on the Second Circuit’s decision in La Russo v. St. George’s
University School of Medicine, 747 F.3d 90 (2d Cir. 2014). 1
That decision has never been addressed by our court. We
find that the district court erred by relying on the Second
Circuit’s La Russo decision, and that it should have
1
The district court adopted a magistrate judge’s findings and
conclusions on August 31, 2020. This opinion refers to those findings
and conclusions as decisions of the district court.
SHARMA V. HSI ASSET LOAN OBLIGATION TRUST 2007-1 5
remanded this case based on the plain language of 28 U.S.C.
§ 1441(a).
STANDARD OF REVIEW
Removal is a question of federal subject matter
jurisdiction that is reviewed de novo. See Providence Health
Plan v. McDowell, 385 F.3d 1168, 1171 (9th Cir. 2004);
Abraham v. Norcal Waste Systems, Inc., 265 F.3d 811, 819
(9th Cir. 2002). Thus, the district court’s decision of
whether to remand a removed case is reviewed de novo. See
Corona-Contreras v. Gruel, 857 F.3d 1025, 1028 (9th Cir.
2017); Nevada v. Bank of America Corp., 672 F.3d 661, 667
(9th Cir. 2012). Even when a party fails to object to removal,
we review de novo whether the district court has subject
matter jurisdiction. Schnabel v. Lui, 302 F.3d 1023, 1029
(9th Cir. 2002). “A ‘defendant seeking removal has the
burden to establish that removal is proper.’” Canela v.
Costco Wholesale Corp., 971 F.3d 845, 849 (9th Cir. 2020)
(citation omitted).
DISCUSSION
The district court erred when it denied remand. The text
of 28 U.S.C § 1441(a) authorizes only a “defendant or the
defendants” to remove an action to federal court. No named
defendant did so here. Because an unnamed party removed
this case, the district court should have remanded it instead
of retaining jurisdiction by applying the reasoning set out in
La Russo. Moreover, the La Russo rule applied by the
district court creates ambiguity and confusion about when an
unnamed and unserved defendant’s 30-day deadline to
remove a case begins and ends, and is contrary to Supreme
Court precedent. See Murphy Bros., Inc. v. Michetti Pipe
Stringing, Inc., 526 U.S. 344, 347–48 (1999) (explaining that
28 U.S.C. § 1446(b) requires more than receipt of a
6 SHARMA V. HSI ASSET LOAN OBLIGATION TRUST 2007-1
complaint to start the 30-day removal clock for a named
defendant who is not yet “under a court’s authority”). To
address that problem, and without acknowledging that its
approach was contrary to Murphy Brothers, La Russo
judicially modified the statutory deadline, relying on an out-
of-circuit district court case to state that a “real party
defendant in interest” must remove within 30 days after it is
“on notice that the wrong defendant has been named.” La
Russo, 747 F.3d at 96 (where a real party defendant in
interest “seeks removal, it must act promptly because the 30-
day interval in which it is permitted to do so, begins when it
is ‘on notice that the wrong company defendant has been
named’”) (quoting Hillberry v. Wal-Mart Stores East, L.P.,
No. Civ. A. 3:05CV-63-H, 2005 WL 1862087, at *1 (W.D.
Ky. Aug. 3, 2005)). This rule is contrary to both the
language of 28 U.S.C. § 1446(b) and the holding in Murphy
Brothers, both of which support a straightforward
conclusion: the 30-day deadline for a defendant named in the
complaint to remove a case to federal court begins when the
defendant is subject to either service of the summons and
complaint, or receipt of the complaint “through service or
otherwise.” Murphy Bros., 526 U.S. at 347.
I. The Plain Meaning of 28 U.S.C. § 1441(a) Requires
Remand.
The federal removal statute provides that “any civil
action brought in a State Court of which the district courts of
the United States have original jurisdiction, may be removed
by the defendant or the defendants” to the appropriate
federal district court. 28 U.S.C. § 1441(a) (emphasis added).
In the context of § 1441(a), “the term ‘defendant’ refers only
to the party sued by the original plaintiff.” Home Depot
U.S.A. Inc. v. Jackson, 139 S. Ct. 1743, 1746 (2019). “We
strictly construe the removal statute against removal
SHARMA V. HSI ASSET LOAN OBLIGATION TRUST 2007-1 7
jurisdiction.” Gaus v. Miles, Inc., 980 F.2d 564, 566 (9th
Cir. 1992) (citations omitted). Therefore, we do not base our
statutory interpretation on “the policy goals behind” the
statute. Home Depot, 139 S. Ct. at 1748 (internal quotation
and citation omitted).
Here, the district court allowed an unnamed party to
remove the case to federal court. The text of § 1441(a)
specifically limits the ability to remove to the “defendant or
the defendants,” and contains no language allowing
mistakenly omitted parties, wrongly excluded parties, or any
other type of non-defendant to remove an action to federal
court. 28 U.S.C. § 1441(a) (“Except as otherwise expressly
provided by Act of Congress, any civil action brought in a
State Court of which the district courts of the United States
have original jurisdiction, may be removed by the defendant
or the defendants, to the district court of the United States
for the district and division embracing the place where such
action is pending.” (emphasis added)); see also Home Depot,
139 S. Ct. at 1749 (observing that “the limits Congress has
imposed on removal show that it did not intend to allow
[even] all defendants an unqualified right to remove”).
The Sharmas sued HSI Asset Loan Obligation Trust and
HSI Asset Securitization Corporation in California state
court. The removal statute allowed either named defendant
to remove the Sharmas’ case to federal court. But neither
did. Instead, DBNTC filed a notice of removal purporting
to be the “real party in interest.” If Congress meant to allow
a “real party defendant in interest” to remove an action on
behalf of a named defendant, it could have written the statute
that way. See Am. Tobacco Co. v. Patterson, 456 U.S. 63,
68 (1982) (“[O]ur starting point must be the language
employed by Congress, and we assume that the legislative
purpose is expressed by the ordinary meaning of the words
8 SHARMA V. HSI ASSET LOAN OBLIGATION TRUST 2007-1
used.” (internal quotations and citations omitted)); see also
Home Depot, 139 S. Ct. at 1749 (providing examples of
other removal provisions in which “Congress has clearly
extended the reach of the statute to include parties other than
the original defendant”).
Accordingly, the district court erred when it stated that
“[e]ven when a party is not named in an action, such as when
the party is mistakenly omitted from the initial complaint or
a plaintiff names the wrong defendant, the intended
defendant is allowed to remove to federal court.” Because
no actual defendant removed this case, the district court
should have remanded it to state court.
II. The Extratextual La Russo Rule Creates Ambiguity
and a Procedural Trap for Unnamed but Interested
Parties.
To support its position that DBNTC properly removed
the case as an “intended” defendant, the district court relied
on a judicially-created exception to § 1441(a) recognized by
the second circuit in La Russo. 2 The La Russo rule provides
that an unnamed “real party defendant in interest” can
2
In La Russo, the Second Circuit openly acknowledged that it was
adopting a judicially-made exception that departs from the actual
language of the removal statute, noting that the phrase “real defendant in
interest” “does not appear in the Federal Rules of Civil Procedure,
including Rule 17, or in the removal statute.” La Russo, 747 F.3d at 96.
The court nonetheless adopted the rule based primarily on the practice of
certain out-of-circuit district courts, and declared that “the concept of a
‘real party defendant in interest’ is not only entirely valid, it is an
important aspect of removal jurisprudence, despite the absence of the
phrase from Rule 17 or elsewhere in the Federal Rules of Civil
Procedure.” Id. at 97. Contrary to LaRusso, a district court has no
authority to assert jurisdiction over a state court action that was not
properly removed pursuant to the plain language of 28 U.S.C. § 1441(a).
SHARMA V. HSI ASSET LOAN OBLIGATION TRUST 2007-1 9
remove a lawsuit to federal court when a plaintiff incorrectly
or improperly names the wrong defendant in its pleadings.
La Russo, 747 F.3d at 96. While at odds with the text of the
removal statute, the rule holds some superficially intuitive
practical appeal. In this case, for example, the district court
concluded that DBNTC is the proper defendant to litigate the
case as trustee for HSI. Instead of remanding the case and
requiring DBNTC to join the state lawsuit before removing,
applying the La Russo rule appears to efficiently cut out
some middle steps by allowing DBNTC to remove without
first intervening in state court, or waiting to be added after
the plaintiffs discover they named the wrong entities.
But as any seasoned litigator will attest, convenience is
rarely the impetus behind most jurisdictional rules, and
absolving parties of an inconvenient step is not a sufficient
justification to ignore the text of a congressionally-enacted
statute and usurp jurisdiction from a state court. See Exxon
Mobil Corp. v. Allapattah Services, Inc., 545 U.S. 546(2005) (“[T]he district courts may not exercise jurisdiction
absent a statutory basis.”). Even if a court had authority to
remove a case based on a judge-made exception to a removal
statute, any perceived practical appeal to judicially altering
§ 1441(a) becomes quite impractical when considering how
the rule would interact with other statutory requirements for
removal. For example, allowing a “real party defendant in
interest” to remove a case creates confusion about how to
enforce the 30-day deadline for removal required by
§ 1446(b). See 28 U.S.C. § 1446(b) (“The notice of removal
. . . shall be filed within 30 days after the receipt by the
defendant, through service or otherwise, of a copy of the
initial pleading . . . or within 30 days after the service of
summons upon the defendant if such initial pleading . . . is
not required to be served on the defendant, whichever period
is shorter.”). Moreover, as Murphy Brothers explained, the
10 SHARMA V. HSI ASSET LOAN OBLIGATION TRUST 2007-1
30-day time to remove “is triggered by simultaneous service
of the summons and complaint, or receipt of the complaint,
‘through service or otherwise,’ after and apart from service
of the summons, but not by mere receipt of the complaint
unattended by any formal service.” 526 U.S. at 348.
Because an unnamed party is rarely under a court’s
authority, La Russo crafted a workaround to modify this 30-
day deadline and service requirement so that it could apply
to an unnamed “real party defendant in interest.” La Russo,
747 F.3d at 96–97. La Russo thus requires technically non-
defendants to remove within 30 days of being put “on notice
that the wrong company defendant has been named.” Id.
This requirement not only presents practical administrative
difficulties—because a non-party must subjectively
determine when it is sufficiently “on notice” in this context,
and file within 30 days of that date or risk forever losing the
opportunity to remove, even if it is later added as a named
defendant—but it is also inconsistent with the Supreme
Court’s authoritative analysis of § 1446(b) in Murphy
Brothers.
In Murphy Brothers, the Supreme Court considered
actions sufficient to trigger the 30-day removal deadline
under § 1446(b), and explained that “a named defendant’s
time to remove is triggered by simultaneous service of the
summons and complaint, or receipt of the complaint,
‘through service or otherwise,’ after and apart from service
of the summons, but not by mere receipt of the complaint
unattended by any formal service.” Murphy Bros., 526 U.S.
at 347–48 (emphasis added). The Court recognized that it
would make little sense to enforce a removal deadline before
a defendant actually joins a lawsuit, and explained that “it
would take a clearer statement than Congress has made . . .
to set removal apart from all other responsive acts, to render
removal the sole instance in which one’s procedural rights
SHARMA V. HSI ASSET LOAN OBLIGATION TRUST 2007-1 11
slip away before service of summons, i.e., before one is
subject to any court’s authority.” Id. at 356. In other words,
according to Murphy Brothers, mere unofficial notice of a
lawsuit is not enough to bring even a named (but unserved)
defendant under a court’s authority and therefore trigger the
30-day removal deadline. See also Anderson v. State Farm
Mut. Auto. Ins. Co., 917 F.3d 1126, 1130 (9th Cir. 2019)
(applying Murphy Brothers and explaining that a defendant
cannot be expected to engage in litigation until the defendant
is formally brought under the court’s authority). A fortiori,
therefore, mere unofficial notice of a lawsuit cannot be
enough to bring an unnamed non-defendant under the court’s
authority and therefore trigger the 30-day removal deadline.
Such a conclusion would be contrary to Murphy Brothers.
When considering the La Russo rule in light of Murphy
Brothers, the La Russo rule begins to look more like the La
Russo trap. It requires an unnamed party who thinks it may
later become an actual defendant to make the indeterminate
determination of when the 30-day countdown clock for
removal begins, before that party is even properly under the
court’s jurisdiction. And if the unnamed party guesses
wrong and chooses to remove the case too late? According
to La Russo, the request would be untimely, and that party
would be barred from removing the case—even if that party
later becomes an actual defendant. La Russo, 747 F.3d at 96
(explaining that an unnamed party “must act promptly” to
remove a case after notice before the 30-day interval for
removal expires). Not only is the La Russo rule contrary to
the text of the federal removal statute, its extratextual
requirements create unnecessary uncertainty for non-parties
that might later join or be joined as a defendant in a state
court action. Therefore, even if a court had authority to
assert removal jurisdiction not authorized by Congress,
LaRusso’s judge-made rule is unworkable.
12 SHARMA V. HSI ASSET LOAN OBLIGATION TRUST 2007-1
CONCLUSION
As a federal court, we must enforce congressionally
enacted limits on our jurisdiction. Constrained by the text of
§ 1441(a), we decline to follow the Second Circuit’s La
Russo rule, but instead hold that only the actual named
“defendant or the defendants” may remove a case under that
removal provision. DBNTC was not a defendant when it
removed this case, so the district court should have
remanded the case. Accordingly, we reverse the district
court and instruct it to remand this case back to the state
court where it originated. 3
REVERSED AND REMANDED.
3
Appellees filed a motion to strike challenging certain out-of-state
documents included in Appellants’ opening brief. Because we reverse
the district court on jurisdictional grounds and instruct it to remand this
case to state court, we find that Appellees’ Motion to Strike, ECF No.
15, should be and is hereby DENIED as moot.