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Gallagher v. Wells Fargo Bank, N.A.

United States District Court, D. Arizona

November 27, 2017

Edward Gallagher, a single person, Plaintiff,
Wells Fargo Bank, N.A., a foreign corporation; ABC Corporations, XZY Partnerships, and John and Jane Does I-X, Defendants.


          David G. Campbell United States District Judge.

         Plaintiff Edward Gallagher moves to remand this case to state court. Doc. 19. Defendant Wells Fargo Bank opposes remand and moves to dismiss Plaintiff's second amended complaint pursuant to Rule 12(b)(6). Doc. 23. The motions are fully briefed and no party has requested oral argument. For reasons stated below, the Court will deny the motion to remand and grant the motion to dismiss in part.

         I. Background.

         Gallagher filed suit in Arizona state court against his mortgage lender, Wells Fargo, alleging that it wrongfully handled two property insurance claims and instituted foreclosure proceedings. Doc. 1-1 ¶¶ 15-40. The original complaint alleges six causes of action: conversion, breach of contract, breach of fiduciary duty, breach of the implied covenant of good faith and fair dealing, negligent misrepresentation, and intentional misrepresentation. Doc. 1-1. The complaint also seeks an injunction preventing Wells Fargo from holding the scheduled trustee sale. Id. Since removal, the parties have stipulated to withdrawal of the injunctive relief claims and Gallagher has filed first and second amended complaints. See Docs. 11, 13, 18.

         II. Motion to Remand.

         Any civil action over which the federal district courts have original jurisdiction may be removed from state court to the federal court for the district where the action is pending. 28 U.S.C. § 1441(a). Courts strictly construe the statute against removal jurisdiction. Gaus v. Miles, Inc., 980 F.2d 564, 566 (9th Cir. 1992). Indeed, there is a “strong presumption” against removal, and “[f]ederal jurisdiction must be rejected if there is any doubt as to the right of removal in the first instance.” Id. This strong presumption “means that the defendant always has the burden of establishing that removal is proper.” Id. “If at any time before final judgment it appears that the district court lacks subject matter jurisdiction, the case shall be remanded.” 28 U.S.C. § 1447(c).

         The Court has jurisdiction over cases in which the parties are diverse and the amount in controversy exceeds $75, 000. 28 U.S.C. § 1332. Gallagher argues that the amount in controversy requirement is not satisfied in this case. Doc. 19 at 2.[1]

         The original complaint does not allege an amount in controversy. Rather, it requests “compensatory damages in an amount to be proven at trial, ” punitive damages “sufficient to deter Wells Fargo from engaging in such conduct in the future, ” an injunction preventing the trustee sale, attorney's fees, and “other relief that the Court deems just and proper.” Doc. 1-1 at 12-13. Gallagher certified in the state court action that he was seeking more than $50, 000, the compulsory arbitration threshold. Doc. 1-3 at 2.

         Wells Fargo “bears the burden of establishing, by a preponderance of the evidence, that the amount in controversy exceeds [$75, 000].” Sanchez v. Monumental Life Ins. Co., 102 F.3d 398, 404 (9th Cir. 1996). Wells Fargo's notice of removal asserts that “Plaintiff seeks an order permanently enjoining the trustee's sale of real property believed to be valued in excess of $250, 000 and which secures a loan with a remaining unpaid balance in excess of $132, 000, ” and that “Plaintiff further seeks unspecified compensatory damages, punitive damages, and attorney's fees.” Doc. 1 ¶ 8.

         Wells Fargo contends that because the original complaint seeks a permanent injunction preventing sale of the property, the loan balance or property value - which both exceed $75, 000 - are appropriate measures of damages. Doc. 24 at 9-11. Gallagher does not dispute that the property value and loan amount exceed $75, 000, but argues that these are not relevant measures of damages because the complaint seeks only a temporary injunction to allow litigation of his compensatory claims and does not seek rescission of the loan. Doc. 19 at 4-7.

         “In actions seeking declaratory or injunctive relief, it is well established that the amount in controversy is measured by the value of the object of the litigation.” Cohn v. Petsmart, Inc., 281 F.3d 837, 840 (9th Cir. 2002) (citing Hunt v. Wash. State Apple Adver. Comm'n, 432 U.S. 333, 347 (1977)). Gallagher concedes that generally the object of a lawsuit brought to enjoin a bank from selling property is that property. Doc. 19 at 3 (citing Lee v. Wells Fargo Bank, N.A., 2015 WL 5618869, at *5 (C.D. Cal. Sep. 24, 2015); Garfinkle v. Wells Fargo Bank, 483 F.2d 1074, 1076 (9th Cir. 1973)). But he argues that this case is an exception because it was not brought for the primary purpose of enjoining foreclosure. Doc. 19 at 4-7. Rather, Gallagher claims, the focus of the case is monetary damages for wrongful conduct. Id. The Court disagrees.

         Gallagher brought this case just four days before the scheduled trustee sale of his property. The complaint asserts within the first two pages that Gallagher's “property is the subject matter of this claim.” Doc. 1-1 ¶ 8. It alleges that as “a direct and proximate result of Wells Fargo's” conduct, Gallagher “has suffered or will suffer from the loss of [$20, 842] and his home.” Id. ¶ 57. It alleges that Wells Fargo intentionally withheld insurance proceeds so that Gallagher would be unable to repay the loan and Wells Fargo could sell the property. Id. ¶ 64. And it requests “temporary, preliminary and permanent injunctive relief.” Id. ¶¶ 47, 50. Gallagher brought suit primarily to prevent foreclosure, which fairly puts at least the remaining loan balance, if not the value of the property, in issue. Wells Fargo has met its burden of showing that the amount in controversy exceeds $75, 000.

         III. Motion to Dismiss.

         Defendant moves to dismiss the second amended complaint (“SAC”) pursuant to Rule 12(b)(6). Doc. 23. For purposes of ruling on the motion, the SAC's factual allegations must be accepted as true. See Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).

         Gallagher's real property is located in Glendale, Arizona, and is subject to a deed of trust securing repayment of a loan from Wells Fargo. Doc. 18 ¶ 5. Gallagher and his wife originally purchased the property in 1978, but Gallagher refinanced the property in 2008. Id. ¶¶ 9-11. Gallagher has AAA hazard insurance coverage on the property. Id. ¶ 12. With respect to this coverage, the deed of trust between Gallagher and Wells Fargo states:

All or part of the Insurance proceeds may be applied by Lender, at its option, either, (a) to the reduction of the indebtedness under the Note and this Security Instrument, first to any delinquent amounts applied in the order in paragraph 3, and then to prepayment of principal, or (b) to the restoration or repair of the damaged Property.

Id. ¶ 45. The SAC alleges that Gallagher was harmed by Wells Fargo's conduct regarding three separate transactions: a 2010 property insurance claim, a 2015 property insurance claim, and a failed loan modification. The Court will summarize the relevant facts of each transaction.

         In 2010, Gallagher's property was damaged by a hail storm and AAA approved a claim for $69, 229.54. Id. ¶¶ 14-15. Gallagher hired a contractor to perform the repairs. Id. ¶ 16. The contractor moved out of state, leaving $16, 000 to $19, 000 of work unfinished. Id. ¶¶ 19-20. Gallagher requested that Wells Fargo disburse $51, 127.22 for the work that was completed. Id. ¶ 18. Wells Fargo paid this amount to the contractor, and then paid the contractor an additional $16, 288.97 in June 2013 without completing an inspection of the property or obtaining Gallagher's approval. Id. ¶¶ 21-28. Gallagher was out of town and ill for “many months” during this time and therefore was not available to verify the repairs. Id. ¶ 23. Months after the checks were sent to the contractor, Gallagher contacted Wells Fargo to inquire about the claim. Id. ¶ 26. Wells Fargo indicated that the “final check” was applied to Gallagher's account, referring to the remaining $1, 950. Id. ¶¶ 27-28. Wells Fargo did not mention the $16, 288.97 check sent to the contractor - of which Gallagher was unaware. Id. ¶ 29.

         In February 2016, Gallagher was conditionally approved for a loan modification that would have reduced his monthly payments by $291.11. Id. ¶¶ 30-31. Believing, however, that Wells Fargo owed him thousands of dollars from the 2010 claim, Gallagher refused to sign the modification agreement unless Wells Fargo turned over certain documents relating to the 2010 claim. Id. ΒΆΒΆ 32, 35. Wells Fargo turned over ...

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