Appeal from the United States District Court for the Northern District of Ohio at Cleveland. No. 08-00514--Sara E. Lioi, District Judge.
The opinion of the court was delivered by: Karen Nelson Moore, Circuit Judge.
RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit Rule 206
Before: MOORE and GRIFFIN, Circuit Judges, and QUIST, District Judge.*fn1
The foreclosure crisis that swept the nation in the latter half of the past decade hit Cleveland particularly hard. It also led to this litigation. Though this case has as its background such weighty factual topics as subprime-mortgage lending, foreclosures, and the precarious economic state of the post- industrial Midwest, the issue at stake in this appeal is solely procedural. Our task is to determine whether the district court had subject-matter jurisdiction over a suit by several financial institutions seeking declaratory and injunctive relief from two other lawsuits filed by the City of Cleveland. We conclude that it did. Because the district court nonetheless dismissed the suit sua sponte for failure to state a claim without notice to the parties, we REVERSE the judgment of the district court and REMAND for further proceedings.
The City of Cleveland has seen a record number of home foreclosures in the past decade. Between 2000 and 2008, Cuyahoga County, Ohio, where Cleveland is located, recorded approximately 80,000 foreclosures. Scott Simon, In Cleveland, Foreclosures Decimate Neighborhoods, Nat'l Pub. Radio, May 24, 2008. In 2007, County Treasurer Jim Rokakis described the city as "the epicenter of the mortgage meltdown in America." Thomas Ott & Susan Vinella, Home Loan Foreclosures on the Rise in Cuyahoga, The Plain Dealer, July 4, 2007, at B1. Against this backdrop came the three lawsuits relevant to this case.
A. City of Cleveland v. Ameriquest Mortgage Securities, Inc. (City of Cleveland I)
In January 2008, Cleveland brought suit against twenty-one financial institutions in Ohio state court, alleging that the defendants' actions in the subprime-mortgage industry constituted a public nuisance under Ohio common law. By securitizing subprime mortgages and later foreclosing on the houses purchased through such mortgages, the defendants allegedly contributed to a financial crisis in the city that included significant declines in property values, a shrinking tax base, and an increase in criminal activity. Cleveland sought to recover for the costs it incurred in monitoring, maintaining, or demolishing foreclosed properties and for decreased tax revenues. The defendants removed the case to federal court on diversity grounds. After denying Cleveland's motions to remand and to amend its complaint by adding JPMorgan Chase Bank, N.A., a non-diverse party, the district court granted the defendants' motion to dismiss on the grounds that the city's suit was preempted by state law and was barred by the economic-loss doctrine, and, alternatively, that the complaint failed to demonstrate that the defendants' actions unreasonably interfered with a public right or were the proximate cause of the alleged harm. City of Cleveland v. Ameriquest Mortgage Sec., Inc., 621 F. Supp. 2d 513, 516-17 (N.D. Ohio 2009). We affirmed on proximate-cause grounds. 615 F.3d 496, 502-06 (6th Cir. 2010), cert. denied, 131 S. Ct. 1685 (2011).
B. City of Cleveland v. JP Morgan Chase Bank, N.A. (City of Cleveland II)
In August 2008, shortly after the district court denied Cleveland's motion to remand in City of Cleveland I, Cleveland filed a second suit in Ohio state court against twenty-eight financial institutions, including the non-diverse JPMorgan Chase Bank, N.A. In addition to pleading another public-nuisance claim, Cleveland alleged that the defendants had violated the Ohio Corrupt Activities Act ("OCAA"), the state RICO analogue, by inaccurately claiming title to mortgages and promissory notes in foreclosure proceedings in violation of Ohio Revised Code § 2921.12(A). See Ohio Rev. Code § 2923.32. Cleveland also sought to recover under Ohio Revised Code § 715.261 for costs incurred maintaining or demolishing foreclosed houses.
C. Chase Bank, USA, N.A. v. City of Cleveland (Chase Bank)
In February 2008, while City of Cleveland I was pending, Plaintiffs-Appellants Chase Bank, USA, N.A., JPMorgan Chase Bank, N.A., JPMorgan Mortgage Acquisition Corp., and J.P. Morgan Securities, Inc. (collectively, "Chase Bank") brought the suit that is currently before us. Chase Bank sued Cleveland in federal district court, seeking a declaratory judgment that Cleveland's public-nuisance claim in City of Cleveland I was preempted by the National Bank Act and requesting an injunction against that suit. After Cleveland filed City of Cleveland II, Chase Bank amended its complaint to request declaratory relief and an injunction against both of Cleveland's lawsuits.*fn2 Cleveland moved to dismiss Chase Bank's suit for lack of subject-matter jurisdiction under Federal Rule of Civil Procedure 12(b)(1), arguing that the suit did not raise a federal question. The district court ruled in August 2010, suggesting that it lacked subject-matter jurisdiction to issue declaratory relief, but had jurisdiction to issue an injunction. Despite the latter ruling, the court dismissed Chase Bank's suit without prejudice for failure to show irreparable harm. Because Chase Bank ...