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Ninth Circuit:
Unnamed Defendant Can’t Remove Case to District Court
Opinion by VanDyke Repudiates Contrary Decision by Second Circuit
By a MetNews Staff Writer
Only a named defendant may remove an action from state court to the federal District Court, the Ninth U.S. Circuit Court of Appeals held yesterday, repudiating a decision of the Second Circuit that recognizes the power of a party that should have been named but wasn’t to effect a removal.
Judge Lawrence VanDyke wrote for a three-judge panel in reversing an order dismissing a wrongful foreclosure action that was brought in Sacramento Superior Court and shifted the power District Court for the Eastern District of California by Deutsche Bank National Trust Company (“DBNTC”) in its capacity as trustee of defendant HSI Asset Loan Obligation Trust 2007-1.
The order was made by Judge John A. Mendez on Aug. 31, 2020, on the basis of the July 17, 2020 findings and recommendations of Magistrate Judge Kendall J. Newman. She wrote:
“Even when a party is not named in an action, such as when a 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….The unnamed defendant, known as a ‘real party defendant in interest,’ is a party who has the duty sought to be enforced or enjoined, or who has ‘the actual interest or control over the subject matter of the litigation.’ ”
Second Circuit Opinion
The language she quoted was from a District Court opinion which cited the Second Circuit’s 2014 decision in La Russo v. St. George’s University School of Medicine—which was criticized by the Ninth Circuit yesterday.
Newman continued:
“Here, DBNTC asserts it is the trustee for the HSI Trust, and submits the foreclosing ‘Trustee’s Deed Upon Sale’ in support….As such, DBNTC contends it has the actual interest and control of the trust that is subject to litigation. The court agrees, and so finds DBNTC entitled to remove….”
Just as a named defendant has a 30-day period after service of the complaint within which to remove a case, a real party must effect a removal within that period after notice of the proceeding, the magistrate judge said. She noted DBNTC’s statement that it learned of the Sacramento Superior Court action on April 7, 2020; its notice of removal was filed on May 4, 2020.
VanDyke’s Opinion
Under subd. (a) of the removal statute—28 U.S.C §1441—there’s no room for argument that an unnamed party has the power to reallocate a case to federal court, VanDyke said. He explained (adding emphasis to the statute in quoting it):
“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….
“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.”
The District Court, he said, should have remanded the case.
Supreme Court Decision
The jurist pointed to the U.S. Supreme Court’s 1999 opinion in Murphy Bros., Inc. v. Michetti Pipe Stringing, Inc. There, Justice Ruth Bader Ginsberg (now deceased) declared:
“[W]e hold 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.”
Addressing the Second Circuit’s holding in La Russo, VanDyke said:
“[W]ithout 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.’…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 sendee of the summons and complaint, or receipt of the complaint ‘through service or otherwise.’ ”
Superficial Appeal
VanDyke commented:
“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.”
Confusion Spawned
He continued:
“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).”
La Russo, he noted, “requires technically non-defendants to remove within 30 days of being put ‘on notice that the wrong company defendant has been named’ which, he remarked, “presents practical administrative difficulties.” VanDyke explained that “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.”
The case is Sharma v. HSI Asset Loan Obligation Trust 2007-1, 20-16898.
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