Avoid Improper Joinder: Name the Correct Defendant

By Robyn Hagan Cain on July 29, 2011 | Last updated on March 21, 2019

Remember 2007? When foreclosure was king, and raising the debt ceiling, like going to the dentist, was one of those unpleasant tasks that you grudgingly faced every few years?

Those times were followed by a collective realization that everyone would be happier if mortgage servicers could work out payment plans with defaulting borrowers to avoid kicking families out of their homes and into court. Of course, nothing is ever easy when mortgages are involved, and the workout deals ultimately generated loads of litigation for lawyers.

For example, in 2009, North Carolina-based Countrywide Home Loans Servicing, (now defendant BAC Home Loans Servicing), sent Timoteo and Eva Cuevas a letter informing them that they were in default on their Texas mortgage and offering them the opportunity to cure the default. The Cuevases alleged that they followed the letter's instructions, but that BAC wrongfully refused to accept a tendered payment, began foreclosure proceedings, and sold the house without providing notice.

After BAC purchased the home at the foreclosure sale and subsequently offered to sell the Cuevases their own home at a profit, the Cuevases sued BAC and Countrywide Home Loans of Texas in Texas state court for wrongful foreclosure, alleging state law claims under the Texas Deceptive Trade Practices Act ("DTPA"), the Texas Debt Collection Practices Act ("DCPA"), a variety of common law theories including negligence, unreasonable collection efforts, fraud, fraudulent inducement, slander of title, and a claim under the Truth in Lending Act (TILA).

The defendants removed the case to the federal court under federal question, (the TILA claim), and diversity jurisdiction, (the amount in controversy exceeded $75,000 and all of the parties in interest were diverse). The defendants argued that Countrywide Home Loans of Texas's presence in the lawsuit did not destroy diversity jurisdiction because that defendant was improperly joined. The Fifth Circuit mostly agreed with the defendants.

Here, the defendants had to prove improper joinder by demonstrating that there was no possibility that the Cuevases could recover against an in-state defendant. The Fifth Circuit found that defendants provided undisputed evidence that Countrywide Home Loans of Texas did not originate or service the Cuevases loans, and therefore that the Cuevases could not recover against an in-state defendant. Because Countrywide Home Loans of Texas was improperly joined, the district court had diversity jurisdiction over the state law claims at the time of remand, and the exercise of that jurisdiction was mandatory.

In addition to inducing nostalgia with a blast from your first-year civ-pro past, this case is an important lesson for plaintiffs' attorneys in mortgage litigation. Mortgage giants, like Countrywide, have lending, brokering, and servicing arms: make sure that you name the proper defendant in your claims.

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