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Estate of Cornell v. Bayview Loan Servicing, LLC

United States Court of Appeals, Sixth Circuit

November 13, 2018

Estate of Robert Cornell, Jr.; Audrey D. Bantom, as Personal Representative of the Estate of Robert L. Cornell, Jr.; Anthony Cornell, Plaintiffs-Appellants,
Bayview Loan Servicing, LLC; Thien Hoang Tran, Defendants-Appellees.

          Appeal from the United States District Court for the Eastern District of Michigan at Detroit. No. 2:17-cv-12121-Gershwin A. Drain, District Judge.

         ON BRIEF:

          Vanessa G. Fluker, VANESSA G. FLUKER, ESQ., PLLC, Detroit, Michigan, for Appellants.

          Deborah S. Lapin, Martin S. Frenkel, MADDIN, HAUSER, ROTH & HELLER, P.C., Southfield, Michigan, for Appellee Bayview Loan Servicing.

          Joseph J. Bernardi, BERNARDI, RONAYNE & GLUSAC, P.C., Plymouth, Michigan, for Appellee Thien Hoang Tran.

          Before: SUHRHEINRICH, MOORE, and BUSH, Circuit Judges.



         This appeal concerns a non-judicial foreclosure under Michigan law. After reviewing the pleadings, we conclude that the district court lacked subject matter jurisdiction to hear the case. Thus, we VACATE the judgment of the district court with instructions to REMAND to Michigan state court.

         I. FACTS

         Robert Cornell, Jr. ("Robert") died on July 29, 2015, owing an outstanding mortgage amount of $113, 358.12 on his home at 8615 Wisconsin Street in Detroit, Michigan. At the time of Robert's death, the monthly mortgage payments on the Wisconsin Street home were up to date. Yet in the five months following his death, the mortgage went unpaid. Defendant Bayview Loan Servicing, LLC ("Bayview"), the mortgage holder, sent a delinquency notice to the home on December 16, 2015, showing an unpaid balance of $5, 813.95. On November 3, 2016, Bayview foreclosed on the mortgage and purchased the home by sheriff's deed at public auction. Bayview later sold the home to Defendant Thien Hoang Tran ("Tran").


         On May 25, 2017, Plaintiffs-Appellants Estate of Robert L. Cornell, Jr. ("Estate"), by and through Personal Representative Audrey D. Bantom and Anthony Cornell (collectively, "Plaintiffs") filed a complaint in Michigan state court alleging four causes of action against Bayview, including most notably a lack of standing to foreclose under the Garn-St. Germain Depository Institutions Act of 1982, codified at 12 U.S.C. § 1701j-3 ("Garn-St. Germain Act" or "Act") and Mich. Comp. Laws § 445.1626. Bayview timely removed to federal court on the basis of federal question jurisdiction under 28 U.S.C. § 1331, citing the Garn-St. Germain Act. Plaintiffs did not object to removal or seek remand. Instead, Plaintiffs filed an amended complaint asserting an additional claim of quiet title against Tran (Count V). Defendants moved for judgment on the pleadings in part on the argument that the Garn-St. Germain Act does not authorize a private right of action. The district court agreed, ruling that the Garn-St. Germain Act does not authorize a private right of action, the Garn-St. Germain Act did not apply to Plaintiffs' claims, or both. The district court granted Defendants' motion on all counts and entered a judgment in their favor. The district court denied Plaintiffs' motion for reconsideration, and Plaintiffs filed this timely appeal.

         III. ANALYSIS

         "Federal courts are courts of limited jurisdiction." Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377 (1994). The district courts "have original jurisdiction of all civil actions arising under the Constitution, laws, or treaties of the United States." 28 U.S.C. § 1331. A defendant may remove a case only if the claim could have been brought in federal court. 28 U.S.C. § 1441(a). Removal jurisdiction is determined from the "well-pleaded complaint." Merrell Dow Pharm. Inc. v. Thompson, 478 U.S. 804, 808 (1986).

         Although no one has specifically addressed subject matter jurisdiction to this point, we have an independent obligation to consider it and may do so sua sponte. Answers in Genesis of Kentucky, Inc. v. Creation Ministries Int'l, Ltd., 556 F.3d 459, 465 (6th Cir. 2009); see also United States v. Cotton, 535 U.S. 625, 630 (2002) (Subject matter jurisdiction "can never be forfeited or waived."). We must correct any defect in subject matter jurisdiction regardless of whether the district court considered it, Cotton, 535 U.S. at 630, even if "many months of work on the part of the attorneys and the court may be wasted," Henderson ex rel. Henderson v. Shinseki, 562 U.S. 428, 435 (2011); see also Hampton v. R.J. Corman R.R. Switching Co., 683 F.3d 708, 711-12 (6th Cir. 2012) (vacating district court's grant of summary judgment after determining that Federal Railroad Safety Act did not create a private cause of action).

         The face of the complaint references a federal statute, the Garn-St. Germain Act, 12 U.S.C. § 1701j-3, which was the sole basis for federal question jurisdiction removal from state court. Before Congress passed the Garn-St. Germain Act, many states had laws restricting the enforcement of due-on-sale clauses.[1] Dupuis v. Yorkville Fed. Sav. & Loan Ass'n, 589 F.Supp. 820, 822 (S.D.N.Y. 1984). The Garn-St. Germain Act prohibits states from banning due-on-sale clauses, providing in principal part that "[n]otwithstanding any provision of the constitution or laws (including judicial decisions) of any State to the contrary, a lender may, subject to subsection (c) of this section, enter into or enforce a contract containing a due-on-sale clause with respect to a real property loan." 12 U.S.C. § 1701j-3(b)(1). That means a due-on-sale clause is presumptively valid unless it qualifies as one of nine exceptions listed in § 1701j-3(d):

With respect to a real property loan secured by a lien on residential real property containing less than five dwelling units, including a lien on the stock allocated to a dwelling unit in a cooperative housing corporation, or on a residential manufactured home, a lender may not exercise its option pursuant to a due-on-sale clause upon-
(1) the creation of a lien or other encumbrance subordinate to the lender's security instrument which does not relate to a transfer of rights of occupancy in the property;
(2) the creation of a purchase money security interest for household appliances;
(3) a transfer by devise, descent, or operation of law on the death of a joint tenant or tenant by the entirety;
(4) the granting of a leasehold interest of three years or less not containing an option to purchase;
(5) a transfer to a relative resulting from the death of a borrower;
(6) a transfer where the spouse or children of the borrower become an owner of the property;
(7) a transfer resulting from a decree of a dissolution of marriage, legal separation agreement, or from an incidental property settlement agreement, by which the spouse of the borrower becomes an owner of the property;
(8) a transfer into an inter vivos trust in which the borrower is and remains a beneficiary and which does not relate to a transfer of rights of occupancy in the property; or
(9) any other transfer or disposition described in regulations prescribed by the Federal Home Loan Bank Board.

         In other words, after the Garn-St. Germain Act, states can only regulate nine types of due-on-sale clauses. In response to the Garn-St. Germain Act, Michigan created its own cause of action for lendees harmed by one of those nine banned due-on-sale clauses. See Mich. Comp. Laws § 445.1626 ("A lender shall not enforce a due-on-sale clause in a residential real property loan in any circumstances under which enforcement is prohibited under section 341(d) of the Garn-St. Germain depository institutions act of 1982, 12 U.S.C. 1701j-3, as currently in force."); Mich. Comp. Laws § 445.1628 (creating a private cause of action for a violation of § 445.1626).

         To fulfill our obligation of ascertaining subject matter jurisdiction, we must determine whether a private cause of action "arises under" the statute sufficient to confer federal subject matter jurisdiction. The "arising under" gateway into federal court in fact has two distinct paths: 1) "litigants whose causes of action are created by federal law," and 2) "state-law claims that implicate significant federal issues." Hampton, 683 F.3d at 711 (quoting Eastman v. Marine Mech. Corp., 438 F.3d 544, 550 (6th Cir. 2006)). Because the Garn-St. Germain Act does not meet this first test, we join those courts, including this one, that have concluded 12 U.S.C. § 1701j-3 does not establish subject matter jurisdiction based on a federal cause of action. Turman v. Wells Fargo Bank, N.A., No. 16-6546, 2018 WL 1840199, at *2 (6th Cir. Mar. 21, 2018) (order) (dismissing because "section 1701j-3 . . . does not provide a right of action"); Dupuis, 589 F.Supp. at 823 (concluding "§ 1701j-3(d)(1) does not create a cause of action for damages"); Nelson v. Nationstar Mortg. LLC, No. 7:16-CV-00307-BR, 2017 WL 1167230, at *2 (E.D. N.C. Mar. 28, 2017) (dismissing because "the Garn-St. Germain Act does not create a cause of action for damages"). As we explain below, subject matter jurisdiction is also not established under the second test.

         A. Causes of Action Created by Federal Law

         "[T]he vast majority of cases brought under the general federal-question jurisdiction of the federal courts are those in which federal law creates the cause of action." Hampton, 683 F.3d at 711 (quoting Merrell Dow, 478 U.S. at 808). To determine whether a private cause of action exists, we must begin with the text of the statute. Touche Ross & Co. v. Redington, 442 U.S. 560, 568 (1979). The cause of action may be express, Ohlendorf v. United Food & Commercial Workers Int'l Union, Local 876, 883 F.3d 636, 640 (6th Cir. 2018), or implied, California v. Sierra Club, 451 U.S. 287, 292-93 (1981).

         1. Express Cause of Action

         The Garn-St. Germain Act does not create an express cause of action because it does not state, "in so many words, that the law permits a claimant to bring a claim in federal court." Ohlendorf, 883 F.3d at 640 (quoting Traverse Bay Area Intermediate Sch. Dist. v. Mich. Dep't of Educ., 615 F.3d 622, 627 (6th Cir. 2010)). Section 1701j-3(b)(1) tells states that they cannot pass laws that restrict the use of due-on-sale clauses, subject to nine exceptions. And while § 1701j-3(d) lists the nine things a lender may not do, it does not offer an aggrieved lendee recourse in federal court.

         2. Implied Cause of Action

         Nor does the Garn-St. Germain Act create an implied cause of action. "[T]he fact that a federal statute has been violated and some person harmed does not automatically give rise to a private cause of action in favor of that person." Touche Ross, 442 U.S. at 568 (quoting Cannon v. Univ. of Chicago, 441 U.S. 677, 688 (1979)). Instead, we must discern congressional intent before implying a remedy. Thompson v. Thompson, 484 U.S. 174, 179 (1988). Absent congressional intent, we may not imply a remedy, no matter how desirable it may be. Bowling Green v. Martin Land Dev. Co., 561 F.3d 556, 559 (6th Cir. 2009).

         When Congress wishes to create new rights-even implied rights of action-"it must do so in clear and unambiguous terms." Gonzaga Univ. v. Doe, 536 U.S. 273, 290 (2002). Congress implies a right of action when its rights-creating language is "clear and unambiguous." Ohlendorf, 883 F.3d at 641 (quoting McCready v. White, 417 F.3d 700, 703 (7th Cir. 2005)). Thus, the statute must specify the right and identify the beneficiary.[2]Id.; see also Alexander v. Sandoval, 532 U.S. 275, 289 (2001) ("Statutes that ban conduct but do not identify specific beneficiaries do not suffice."). This Act does not do both. Section 1701j-3(a)(1) bans states from passing laws restricting due-on-sale clauses, and § 1701j-3(d) bans lenders from exercising due-on-sale clauses in certain scenarios. Neither section identifies specific beneficiaries. Although mortgagors may benefit, because § ...

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