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Cutrone v. Mortgage Electronic Registration Systems, Inc.

United States Court of Appeals, Second Circuit

April 17, 2014

BRIAN CUTRONE AND JESSICA CERVONE, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED, Plaintiffs-Appellees,
v.
MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC., Defendant-Appellant

Argued April 1, 2014

Appeal from the United States District Court for the Eastern District of New York. No. 13 CV 3075 -- Eric N. Vitaliano, Judge. Appeal from an order of the United States District Court for the Eastern District of New York (Eric N. Vitaliano, Judge), holding the defendant-appellant's notice of removal untimely and remanding this putative class action to state court. We granted MERS's petition for permission to appeal the remand order and instructed the parties to address: (1) whether this Court's decision in Moltner v. Starbucks Coffee Co., 624 F.3d 34 (2d Cir. 2010) (per curiam), which held that the removal " clocks" of 28 U.S.C. § 1446(b) are not triggered until the plaintiff files a document that explicitly specifies the amount of damages sought, applies to actions removed under the Class Action Fairness Act of 2005 (" CAFA" ) and (2) whether a defendant may remove a case under CAFA if neither of the two 30-day periods set forth in 28 U.S.C. § § 1446(b)(1) and (b)(3) is triggered because the initial pleading and other documents are indeterminate with respect to removability but the defendant later asserts removability on the basis of its own investigation. We answer both questions in the affirmative. We hold that Moltner applies to cases removed pursuant to CAFA and that the defendant-appellant's notice of removal was timely. Accordingly, we VACATE the district court's order and REMAND.

CHARLES C. MARTORANA, Hiscock & Barclay, LLP, Buffalo, NY, for Defendant-Appellant.

ANDREW S. LOVE (Samuel H. Rudman, Mark S. Reich, William J. Geddish, Susan K. Alexander, on the brief), Robbins Geller Rudman & Dowd LLP, San Francisco, CA, and Melville, NY, for Plaintiffs-Appellees.

Before: WALKER, CHIN, and DRONEY, Circuit Judges.

OPINION

Page 138

Droney, Circuit Judge

Defendant-appellant Mortgage Electronic Registration Systems, Inc. (" MERS" ) appeals from an order of the United States District Court for the Eastern District of New York (Eric N. Vitaliano, Judge ) granting the motion of the putative class member plaintiffs-appellees (" plaintiffs" ), to remand this case to New York state court on the ground that MERS's notice of removal was untimely. The district court concluded that the plaintiffs' complaint contained sufficient information to put MERS on notice of the size of the putative class and amount in controversy to establish subject matter jurisdiction pursuant to 28 U.S.C. § 1332(d), and it held that

Page 139

MERS's notice of removal, filed more than 30 days after receipt of the complaint, was therefore untimely under 28 U.S.C. § 1446(b)(1).

We reverse and hold that, in Class Action Fairness Act (" CAFA" ) cases, the 30-day removal periods of 28 U.S.C. § § 1446(b)(1) and (b)(3) are not triggered until the plaintiff serves the defendant with an initial pleading or other paper that explicitly specifies the amount of monetary damages sought or sets forth facts from which an amount in controversy in excess of $5,000,000 can be ascertained. We also hold that where a plaintiff's papers fail to trigger the removal clocks of 28 U.S.C. § § 1446(b)(1) and (b)(3), a defendant may remove a case when, upon its own independent investigation, it determines that the case is removable; thus, the 30-day removal periods of 28 U.S.C. § § 1446(b)(1) and (b)(3) are not the exclusive authorizations for removal in CAFA cases.

Here, neither the plaintiffs' initial complaint nor their response to MERS's demand for a bill of particulars in the state court explicitly specified the amount of damages sought or provided MERS with sufficient information to conclude the threshold amount in controversy was satisfied. The named plaintiffs' identification of their damages ($6,835.20) and their allegation that the potential class " includes hundreds, and likely thousands, of persons and entities," were not adequate to trigger the 30-day removal periods of 28 U.S.C. § § 1446(b)(1) and (b)(3). We also hold that MERS properly filed its notice of removal after determining upon its own investigation that the amount in controversy, number of plaintiffs, and diversity between itself and at least one plaintiff class member satisfied the CAFA subject matter jurisdictional requirements set forth in 28 U.S.C. § 1332(d). We accordingly VACATE the order of the district court and REMAND.

BACKGROUND

The Parties and the Class Complaint

Plaintiffs Brian Cutrone and Jessica Cervone filed the present putative class action against MERS in the Supreme Court of the State of New York, Kings County on February 20, 2013. Their complaint asserts causes of action against MERS under New York state law for common law breach of implied warranty, deceptive business practices in violation of New York General Business Law Section (" NYGBL" ) § 349, and false advertising in violation of NYGBL § 350, allegedly committed in connection with MERS's facilitation of the provision of " Esign" [1] mortgages to consumer-borrowers.

According to the plaintiffs' complaint, MERS is a Delaware corporation with its principal place of business in Virginia. MERS created an Internet-based electronic process through which borrowers can obtain paperless Esign mortgages and engage in refinancing of mortgages, and members of the real estate mortgage industry can more easily securitize and bundle mortgages. To facilitate these transactions, MERS acts as the mortgagee of record in local recording offices regardless of the number of times a mortgage is refinanced or the relevant lenders change.

When a party executes an Esign mortgage, no physical mortgage document, such as a mortgage note, is created. Instead, the mortgage documents exist as electronic records registered on MERS's " eRegistry." When a party later wishes to refinance an Esign mortgage or otherwise

Page 140

assign it to another party, MERS inputs the applicable changes into its eRegistry. Thus, although MERS never physically holds a mortgage note or related instrument, MERS asserts that it facilitates mortgage and note assignments, including refinancing, utilizing its electronic database.

New York state courts have held that a lender does not have standing to commence a foreclosure action when its assignor, MERS, neither received the right to transfer the mortgage note nor physically possessed the underlying mortgage note. See, e.g., Bank of N.Y. v. Silverberg, 86 A.D.3d 274, 926 N.Y.S.2d 532, 538-40 (2d Dep't 2011). Esign mortgages acquired through MERS's electronic system may be " non-assignable," which limits MERS's customers' ability to refinance their mortgages electronically and avoid recording fees, as well as MERS's ability to transfer pools of mortgages as securities.

Cutrone and Cervone obtained their first mortgage on their home in Brooklyn through an Esign mortgage that listed MERS as the nominee and mortgagee on March 27, 2008, and paid $7,476.00 in taxes as required by New York's mortgage recording tax.[2] See N.Y. Tax Law § 253. Four years later, they refinanced their mortgage. They were unable to utilize a New York Consolidation, Extension and Modification Agreement (" CEMA" ), which permits a mortgagor to consolidate his original and refinanced mortgages and pay only the difference in mortgage recording tax between the two mortgages. A CEMA could not be used because MERS could not effectuate the assignment between the original and new lenders. The plaintiffs thus paid a second mortgage recording tax of $6,835.20 on their refinanced mortgage on January 7, 2013.

In their putative class action complaint, which alleges that other borrowers were also required to pay additional recording taxes because of their Esign mortgages, the plaintiffs do not specifically enumerate either the expected number of class members that will join them or the total amount of additional mortgage recording taxes paid by class members. The plaintiffs merely provide the amount of the mortgage recording tax they paid on their refinanced mortgage ($6,835.20) and estimate that the class includes " hundreds, and likely thousands, of persons and entities." The plaintiffs also failed to specify in their response to the defendant's demand for a bill of particulars in the state court the number of members in the putative class, ...


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