Jefferson Capital Sys. v. Alveranga

JEFFERSON CAPITAL SYSTEMS, LLC, Plaintiff, v. ELSADA ALVERANGA, et al., Defendants.

CASE NO. 1:20-CV-00990

UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF OHIO EASTERN DIVISION

November 12, 2020

JUDGE PAMELA A. BARKER

MEMORANDUM OF OPINION AND ORDER

This matter comes before the Court upon the Motion to Remand of Defendants/Counterclaim and Third-Party Claim Plaintiffs Elsada Alveranga and Rosalie Alveranga (collectively, the "Alverangas"). (Doc. No. 8.) Third-Party Defendant Exeter Finance, LLC ("Exeter") filed a brief in opposition to the Alverangas' Motion to Remand on July 1, 2020, to which the Alverangas replied on July 17, 2020. (Doc. Nos. 11, 13.) The Court also granted Exeter leave to file a surreply, which Exeter filed on July 24, 2020. (Doc. No. 14.)¹ For the following reasons, the Alverangas' Motion to Remand (Doc. No. 8) is GRANTED.

I. Background

In December 2014, the Alverangas entered into a retail installment sales contract with Fast Track Auto Sales ("Fast Track") for the purchase of a vehicle. (Doc. No. 1-1 at 159-60.) Fast Track subsequently assigned its interest in the contract to Exeter. (Id. at 160.) In 2016, the Alverangas defaulted on their payments, and Exeter repossessed and sold the vehicle. (Id. at 161-62.) Exeterthen assigned its interest in the Alverangas' contract to Plaintiff Jefferson Capital Systems, LLC ("Jefferson"). (Id. at 2.) On November 21, 2019, Jefferson filed a Complaint in the Court of Common Pleas for Cuyahoga County, Ohio against the Alverangas seeking recovery of the remaining $4,394.61 plus interest owed on the contract. (Id. at 1-3.)

On February 14, 2020, the Alverangas responded to Jefferson's Complaint by filing a pleading labeled as an Answer, Affirmative Defenses, Counterclaim, and Third-Party Complaint ("Counterclaim"). (Id. at 95-101.) Therein, the Alverangas asserted a counterclaim against Jefferson under the "FTC Holder Rule," as well as two claims against Exeter based on alleged violations of Ohio's Retail Installment Sales Act ("RISA") and the Ohio Uniform Commercial Code ("OUCC") related to Exeter's repossession and sale of the Alverangas' vehicle. (Id.)

On April 7, 2020, the Alverangas, on behalf of themselves and a putative class, filed what they styled as an Amended Class Action Counterclaim and Third-Party Complaint ("Amended Counterclaim"). (Id. at 156-79.) In their Amended Counterclaim, the Alverangas assert several claims against Exeter relating to the financing, repossession, and sale of the Alverangas' and class members' vehicles under the common law, RISA, and the OUCC. (Id. at 170-77.)² The parties dispute, however, whether the Amended Counterclaim includes any claims against Jefferson. (Doc. No. 11 at 6-11; Doc. No. 13 at 3-5.)

Subsequently, on May 6, 2020, Exeter removed the action to this Court. (Doc. No. 1.) In its Notice of Removal, Exeter asserts that federal jurisdiction exists over the Alverangas' claims against it under the Class Action Fairness Act ("CAFA") and that federal question jurisdiction also existsbased on the TILA claim. (Id. at 8-9.) Recognizing that third-party defendants are generally precluded from removing a third-party complaint, Exeter contends that removal is appropriate in these circumstances because it was not properly joined to Jefferson's collection suit against the Alverangas. (Id. at 2.) According to Exeter, the Alverangas' claims in substance constitute an independent class action that was improperly misjoined to Jefferson's collection suit. (Id.) Exeter requests that the Court retain jurisdiction over the class action claims brought against it and sever and remand the rest of the action. (Id. at 2-3.)

On June 1, 2020, the Alverangas filed a Motion to Remand, contesting many of the assertions in Exeter's Notice of Removal and alleging that Exeter's removal of the state court action was improper for several reasons. (Doc. No. 8.) Exeter filed a brief in opposition to the Alverangas' Motion to Remand on July 1, 2020, to which the Alverangas replied on July 17, 2020. (Doc. Nos. 11, 13.) The Court also granted Exeter leave to file a surreply, which Exeter filed on July 24, 2020. (Doc. No. 14.)

II. Legal Standard

"The general removal statute, 28 U.S.C. § 1441(a), provides that 'any civil action' over which a federal court would have original jurisdiction may be removed to federal court by 'the defendant or the defendants.'" Home Depot U. S. A., Inc. v. Jackson, 139 S. Ct. 1743, 1745 (2019). CAFA also includes a removal provision specific to class actions that meet certain requirements for federal jurisdiction. See 28 U.S.C. § 1453; In re Mortg. Elec. Registration Sys., Inc., 680 F.3d 849, 853 (6th Cir. 2012) ("[CAFA] confers federal jurisdiction over class actions in which the matter in controversy exceeds $5 million, there is minimal diversity of citizenship, and the proposed class includes at least one hundred members."). "That provision permits the removal of a 'class action' from state court tofederal court 'by any defendant without the consent of all defendants' and 'without regard to whether any defendant is a citizen of the State in which the action is brought.'" Home Depot, 139 S. Ct. at 1746-47 (quoting 28 U.S.C. § 1453(b)).

Generally, "[f]ederal courts . . . must strictly construe removal jurisdiction." Am. Gen. Fin. Services v. Griffin, 685 F. Supp. 2d 729, 732 (N.D. Ohio 2010); see also In re Mortg., 680 F.3d at 853. The removing party also "bears the burden of showing that removal was proper." Am. Gen., 685 F. Supp. 2d at 732. Although ordinarily "[a]ll doubts as to the propriety of removal are resolved in favor of remand," Coyne v. Am. Tobacco Co., 183 F.3d 488, 493 (6th Cir. 1999), "no antiremoval presumption attends cases invoking CAFA, which Congress enacted to facilitate adjudication of certain class actions in federal court," Dart Cherokee Basin Operating Co., LLC v. Owens, 574 U.S. 81, 89 (2014).

III. Analysis

In their Motion to Remand, the Alverangas assert that Exeter's removal was improper for several reasons. First, the Alverangas contend that Exeter was properly joined as a party to the Alverangas' counterclaims against Jefferson under Ohio Rules of Civil Procedure 13 and 19. (Doc. No. 8 at 2-3.) As such, the Alverangas assert that Exeter is a third-party counterclaim defendant that has no right to remove a state court action to federal court. (Id. at 5-7.) Indeed, the Alverangas posit that this case is on all fours with the Supreme Court's recent holding in Home Depot. (Id.) Next, the Alverangas argue that even if Exeter was misjoined, it still has no right to removal, as Home Depot does not provide for any such exception and the Sixth Circuit does not recognize the doctrine of fraudulent misjoinder. (Id. at 7-10.) Finally, the Alverangas also assert that Exeter's removal wasuntimely because it failed to file its Notice of Removal within thirty days of when the Alverangas filed their first Counterclaim naming Exeter as a party to the suit. (Id. at 8.)

In opposition, Exeter asserts it was, in fact, misjoined and that removal was therefore proper. Specifically, Exeter asserts that it is not a proper third-party counterclaim defendant under Rule 13 of either the Ohio or Federal Rules of Civil Procedure because the Alverangas' Amended Counterclaim does not include any claims against Jefferson. (Doc. No. 11 at 6-13.) Exeter also contends it was not joined as a proper third-party defendant under Rule 14 of either the Ohio or Federal Rules of Civil Procedure because class actions may not be asserted in a third-party complaint and the Alverangas' claims against it are not derivative of Jefferson's claim against the Alverangas. (Id. at 13-15.) As such, Exeter asserts that the Alverangas have actually improperly instituted a "disguised separate action" against Exeter. (Id. at 15.) According to Exeter, pursuant to Fed. R. Civ. P. 21 and the fraudulent misjoinder doctrine, as well as its supporting principles, removal was proper, and the Court should sever the misjoined claims and remand those claims it lacks jurisdiction over back to the state court. (Id. at 15-19.) With respect to the Alverangas' assertion that removal was untimely, Exeter asserts that the Alverangas' initial Counterclaim did not provide any basis for federal jurisdiction, and that Exeter timely removed the action after the filing of the Alverangas' Amended Counterclaim. (Id. at 19-20.)

Upon review of the parties' arguments, the Court concludes that even if the Alverangas' claims against Exeter were misjoined in the state court action below, Exeter had no right to remove the action to federal court.³ As a result, the matter will be remanded to state court.

As noted above, the general removal statute permits removal by "the defendant or the defendants" to a state court action, and CAFA's removal provision similarly permits removal by "any defendant." 28 U.S.C. § 1441(a); 28 U.S.C. § 1453(b). The Supreme Court recently addressed what parties may be considered "defendants" with the right to remove a state court action under these provisions in circumstances very similar to those presented here. In Home Depot, Citibank filed a debt-collection action against an individual, Jackson, in state court related to charges that Jackson incurred on a Home Depot credit card. 139 S. Ct. at 1747. In response, Jackson "answered and filed his own claims: an individual counterclaim against Citibank and third-party class-action claims against Home Depot U. S. A., Inc., and Carolina Water Systems, Inc." Id. After Citibank dismissed its claims against Jackson, Home Depot removed the action to federal court pursuant to both the general removal statute and CAFA. Id. Jackson then moved to remand the case. Id.

Upon review, the Supreme Court held that Home Depot's removal was improper. First, with respect to the general removal statute, the Supreme Court concluded that "§ 1441(a) does not permit removal by any counterclaim defendant, including part...