Chase Bank U.S., N.A. v. City of Cleveland

735 F.Supp.2d 773

CHASE BANK USA, N.A., et al., Plaintiffs,

v.CITY OF CLEVELAND, Defendant.

Case No. 1:08CV514.

United States District Court,

N.D. Ohio,

Eastern Division.

Aug. 5, 2010.

Isaac Schulz, Michael N. Ungar, Richik Sarkar, Elizabeth A. Jerdonek, Isaac J. Eddington, Ulmer & Berne, Cleveland, OH, for Plaintiffs.

Gary S. Singletary, Michael F. Cosgrove, Robert J. Triozzi, City of Cleveland, Department of Law, James B. Rosenthal, Joshua R. Cohen, Cohen, Rosenthal & Kramer, Mark A. Stanton, Short, Shepherd & Stanton, Cleveland, OH, for Defendant.

MEMORANDUM OPINION

SARA LIOI, District Judge.

Plaintiffs, Chase Bank USA, N.A., JPMorgan Chase Bank, N.A., JPMorgan Mortgage Acquisition Corp., and J.P. Morgan Securities, Inc. (collectively "the Chase Plaintiffs"), brought this declaratory judgment and injunction action against Defendant City of Cleveland ("City"). The City has filed a motion to dismiss the Amended Complaint under Fed. R. Civ. P. 21(b)(1) for lack of subject matter jurisdiction. (Doc. No. 31.) The motion is briefed and ripe for decision.

Background

To fully understand the posture of the present case, it is necessary to review the procedural history of two related cases. On January 10, 2008, the City filed suit against various banks and lending institutions in the Cuyahoga County Court of Common Pleas. The action was removed to this Court on January 15, 2008. See City of Cleveland v. Deutsche Bank Trust Co., et al., Case No. 1:08CV139 (referred to hereafter as "the Federal Action.") It is undisputed that the Chase Plaintiffs were not originally parties to the Federal Action, but were added as defendants on or about October 8, 2008. ( See Federal Action, Doc. No. 189, Second Am. Compl.; Case No. 1:08CV514, Doc. No. 29, Am. Compl. at ¶ 7.)

In the Federal Action, the City asserted a single public nuisance cause of action against the defendants. According to theCity, subprime lending created a financial crisis in Cleveland that resulted in a high incident of foreclosure, leading to a decline in neighborhood property values, and an increase in abandoned properties and criminal activity. The Federal Action Defendants (including the Chase Plaintiffs), however, were not directly responsible for the issuance of the subprime loans. Rather, these institutions securitized the already issued subprime loans into mortgage-backed securities (MBS). The City sought to recover damages it claimed represented the cost of monitoring, maintaining, and demolishing foreclosed properties; and the diminution in the City's property tax revenues caused by the depreciating effect foreclosures have had on the affected homes and surrounding properties.

The Federal Action Defendants moved to dismiss on a variety of state and federal grounds (Federal Action, Doc. Nos. 197, 199, 202, 205, 207, 208, 209, 228.) On May 15, 2009, the Court issued its ruling granting the motions to dismiss on numerous state law grounds. (Doc. No. 247, Memo. Op. at 9.) Because the Court dismissed on state grounds, it did not reach the issue of federal preemption. On July 27, 2010, the Sixth Circuit issued a decision affirming this Court's ruling. See City of Cleveland v. Ameriquest Mort. Securities, 615 F.3d 496 (6th Cir.2010). In affirming, the Sixth Circuit focused its attention solely on this Court's holding that the City was unable to set forth a claim for nuisance due to the fact that it could not establish the necessary element of proximate cause. Id. at 505-07. Like this Court, the Sixth Circuit did not reach the issue of federal preemption.

Before this Court issued its ruling in the Federal Action, the Chase Plaintiffs filed, on February 28, 2008, the present declaratory judgment action (hereinafter referred to as the "Declaratory Judgment Action.") In the Amended Complaint, the Chase Plaintiffs seek declarations that Ohio law is preempted by the National Bank Act (NBA) and by regulations promulgated by the Office of the Comptroller of the Currency (OCC) as to securitizing activities, and the purchase of mortgage loans by non-bank entities-including the Chase Bank Defendants-from national banks.¹ They also seek declarations that the recovery of costs associated with the foreclosed properties and any claim under Ohio's Corrupt Activities Act are preempted by federal law. (Am. Compl., Prayer for Relief at ¶¶ A-D.) In addition, as will be discussed in detail below, the Chase Plaintiffs seek preliminary and permanent injunctive relief.

On August 22, 2008, a third related action was filed in the Cuyahoga County Court of Common Pleas ("the State Action"). As was the case in the Federal Action, the City brought a cause of action for public nuisance, once again seeking the recovery of costs associated with the property foreclosures. In addition, the City also raised claims for damages under Ohio Rev. Code § 715.261, which allows for the recovery of costs associated with vacant structures, and Ohio's Corrupt Activities Act, Ohio Rev. Code § 2921.12(A).

The issues of federal preemption and severance were raised in the State Action in a motion to dismiss. The state court ruled on the issue of severance, but reserved ruling on federal preemption. The state court subsequently stayed the State Action, pending a ruling from the SixthCircuit in the Federal Action. ( See Doc. No. 27.)

This Court had temporarily held the Declaratory Judgment Action in abeyance pending a ruling in the State Action. Upon the issuance of the stay in the State Action, the Court granted the Chase Plaintiffs leave to file an amended complaint. Following the filing of the amended pleading, the City moved for dismissal.

Standard of Review

Where a defendant raises the issue of lack of subject matter jurisdiction under Rule 12(b)(1), the plaintiff has the burden of proving jurisdiction in order to survive the motion to dismiss. Moir v. Greater Cleveland Regional Transit Auth., 895 F.2d 266, 269 (6th Cir.1990). See DLX, Inc. v. Kentucky, 381 F.3d 511, 516 (6th Cir.2004).

Motions to dismiss for lack of subject matter jurisdiction fall into two general categories: facial attacks and factual attacks. United States v. Ritchie, 15 F.3d 592, 598 (6th Cir.1994). A facial attack on subject matter jurisdiction goes to whether the plaintiff has properly alleged a basis for subject matter jurisdiction, and the trial court takes the allegations of the complaint as true. Ohio Nat'l Life Ins. Co. v. United States, 922 F.2d 320, 325 (6th Cir.1990); Smith v. Encore Credit Corp., 623 F.Supp.2d 910, 914 (N.D.Ohio 2008). A factual attack is a challenge to the factual existence of subject matter jurisdiction. No presumptive truthfulness applies to the factual allegations, and the court is free to weigh the evidence and satisfy itself as to the existence of its power to hear the case. Ritchie, 15 F.3d at 598; Moir, 895 F.2d at 269. Here, the City is making a facial attack on the Chase Plaintiffs' Amended Complaint.

Discussion

In their Amended Complaint to the Declaratory Judgment Action, the Chase Plaintiffs allege that the "Court has jurisdiction over this action pursuant to 28 U.S.C. § 1331, because it arises under the Constitution and laws of the United States. In addition, jurisdiction is proper under 28 U.S.C. § 1343(a)(3), because [the City], under color of state law, seeks to deprive Plaintiffs of their federal constitutional rights." (Am. Compl. at ¶ 20.) In its motion to dismiss, the City argues that subject matter jurisdiction is found in neither § 1331 nor § 1343.

No Federal Question Jurisdiction under 28 U.S.C. § 1331 when Seeking Declaratory Judgment on an Anticipated Defense

"The Declaratory Judgment Act does not create an independent basis for federal subject matter jurisdiction." Heydon v. MediaOne of Southeast Mich., Inc., 327 F.3d 466, 470 (6th Cir.2003). See Vaden v. Discover Bank, --- U.S. ----, 129 S.Ct. 1262, 1278, n. 19, 173 L.Ed.2d 206 (2009); Playa Marel, P.M., S.A. v. LKS Acquisitions, Inc., 585 F.3d 279, 280 (6th Cir.2009). Thus, to utilize the Declaratory Judgment Act, a plaintiff must demonstrate that the district court already has subject matter jurisdiction. See Heydon, 327 F.3d at 470.

Section 1331, the federal question jurisdictional statute, gives federal district courts original jurisdiction over "all civil actions arising under the Constitution, laws, or treaties of the United States." ²28 U.S.C. § 1331. "[W]hether a claim 'arises under' federal law must be determined by reference to the 'well-pleaded complaint.' " Merrell Dow Pharms. Inc. v. Thompson, 478 U.S. 804, 808, 106 S.Ct. 3229, 92 L.Ed.2d 650 (1986) (citing Franchise Tax Bd. of Cal. v. Constr. Laborers Vacation Trust, 463 U.S. 1, 9-10, 103 S.Ct. 2841, 77 L.Ed.2d 420 (1983)). "It is well settled that '[a] defense that raises a federal question is inadequate to confer federal jurisdiction.' " Nicodemus v. Union Pac. Corp., 318 F.3d 1231, 1236 (10th Cir.2003) (quoting Merrell Dow, 478 U.S. at 808, 106 S.Ct. 3229.) "Federal-question jurisdiction is not present 'even if the [federal] defense is anticipated in the plaintiff's complaint, and even if both parties admit that the defense is the only question truly at issue in the case.' " Id. (quoting Franchise Tax Bd., 463 U.S. at 14, 103 S.Ct. 2841).

The provisions of the "well-pleaded complaint rule" are equally applicable in the context of a declaratory judgment action. As the court observed in Penobscot Nation and Passamaquoddy Tribe v. Georgia-Pacific Corp., 106 F.Supp.2d 81, 82 (D.Maine 2000):

The answer [that an anticipated defense cannot create jurisdiction] is the same if the defendant acts first and brings a declaratory judgment action in federal court seeking a declaration that its federal defense trumps the plaintiff's state law claim. Although the defendant has thereby become the plaintiff and ostensibly has pleaded a claim that is federal, there is still no federal jurisdiction.

See also Vaden, 129 S.Ct. at 1278, n. 19 (quoting 10B Wright & Miller § 2758, pp....