Written By: Christine E. Howson
Ordinarily in most consumer finance, and particularly mortgage/foreclosure litigation cases, when there is a basis for removal of the case from state to federal court, the advantages of removing the case to federal court far outweigh the disadvantages. This article reviews some of the advantages of removing cases brought by borrowers against lenders and servicers.
In general, a defendant has the right to remove a case to federal court if the case could have initially been filed in federal court on either diversity or federal question grounds, or both. The types of cases that may be removed, and the conditions under which they may be removed, are governed by federal statutes commencing with 28 U.S.C. §1441, et seq. Although the successful removal of a case involves the proper and timely implementation of the federal statutory removal procedures, if done correctly, the advantages of proceeding in federal court can provide significant benefits for lenders and servicers defending mortgage litigation actions.
Although plaintiffs usually pick the forum in which their cases will be litigated, removal jurisdiction is an independent basis for jurisdiction that allows defendants to invoke federal court jurisdiction. When authorized, it allows a defendant in a state court case to remove the case to the federal court in the district where the state court proceeding is pending. Upon the filing of the removal notice, the state court’s jurisdiction over the removed case automatically ceases. Removal of a case to federal court can be helpful where the case is pending in an outlying state court and especially useful to avoid any “home-court” advantage the plaintiff might benefit from, such as being able to avoid local state court rules and policies, and small-town familiarity between the local judges and lawyers. Also, requiring the plaintiff or his/her counsel to travel to the location of the federal court, might dissuade those litigants with a weak case from pursuing it.
Another factor is that federal judges are likely to be more familiar with the federal claims alleged in the action – especially as to the decisions interpreting federal statutes adopted by the district courts in the federal circuit where the action is pending. Federal judges also often have more time and resources to study and consider the governing law and the particular facts of each case, resulting in a more thorough analysis of the plaintiff’s claims earlier in the action. This factor may in large part be due to the presence of often times two or more attorney law clerks assigned to individual federal judges.
To the extent that federal court judges have greater familiarity with the law and the facts of their cases, it is less likely that plaintiffs will be afforded repeated opportunities to amend where no reasonable basis for doing so is shown. This is especially true because upon removal the complaint filed by the plaintiff in state court becomes subject to the federal pleadings standards, including the Twombly/Iqbal “plausibility” requirement which provides that the court is not required to accept as true allegations contained in a complaint which are mere legal conclusions, and that only a complaint that states a plausible claim for relief survives a motion to dismiss.
Moreover, as to motions for summary judgment, the moving party’s burden on the granting of a motion for summary judgment in federal court is generally viewed as less stringent than that in California state courts, and motions for partial summary judgment may be granted based on issues not allowed in California state courts, thus expanding the likelihood of, and tools available for, the Court granting a dispositive motion eliminating all or a significant portion of the case.
Another important advantage gained by removal of a case to federal court is the time and money which may be saved by the early disclosure requirements. Following removal of the case, Rule 26 of the FRCP requires the disclosure of witnesses and documents relevant to the case by all parties, and an itemization of the damages sought by plaintiffs. Thus, the plaintiffs must show their cards early in the case by providing what information they have, if any, to support their claims against the defendants, and may provide an additional early means of detecting and more quickly exposing those cases which are merely filed to stall lien enforcement or debt collection without any reasonable chance of prevailing at trial.
Lastly, an important (but certainty not the final) advantage of removing a case to federal court is that unanimous jury verdicts are required in federal civil trials — as opposed to the 3/4 verdict (i.e., 9 out of 12 jurors) needed in California state courts. In a federal court trial, if even one juror is not convinced as to the defendant’s liability, the defendant will escape liability for the plaintiff’s claim (although there may be as few as six total jurors in a federal court trial).
While not foolproof by any means and certainly not an automatic guarantee for success, lenders and servicers named as defendants in state court lawsuits brought by borrowers will likely find that if removal is possible, removal of the case to federal court can streamline and thereby shorten the life of the case and thus also often times reduce the total cost of the litigation.