Thursday, April 18, 2013

FYI: Ninth Circuit Rejects Borrower's Attempt to Oppose Removal Based on "Prior Exclusive Jurisdiction" or Colorado River Doctrines

The U.S. Court of Appeals for the Ninth Circuit recently ruled in part that neither the "prior exclusive jurisdiction" doctrine, nor the so-called Colorado River abstention doctrine, applied to borrowers' foreclosure-related claims to support remand of their case to state court.  In so ruling, the Court concluded that: (1) removal to federal court on grounds of diversity terminated the state court's jurisdiction over borrowers' property; and (2) there were no "pending state court proceedings" involving borrowers' property to support remand. 


A copy of the opinion is available at:


Plaintiffs borrowers ("Borrowers") obtained a home mortgage loan from defendant bank ("Bank") that was secured by a deed of trust.  Borrowers eventually defaulted on their loan, and the trustee under the deed of trust initiated foreclosure proceedings.


Following unsuccessful foreclosure mediation, Borrowers filed a complaint in Nevada state court against Bank, the original and substitute trustees, the loan servicer and others associated with the loan and trust deed (collectively, "Defendants"), alleging among other things wrongful foreclosure, fraud, unfair lending practices, and unfair and deceptive trade practices, and seeking to quiet title.  Borrowers also filed a notice of lis pendens.


Defendants removed the case to federal court on grounds of diversity, and moved to dismiss.   The trustee under the deed of trust additionally moved to expunge the lis pendens in order to proceed with the foreclosure.  The lower court granted the motions to dismiss.  Borrowers appealed, arguing that the lower court should have remanded back to state court instead. 


The Ninth Circuit affirmed, ruling that the prudential rules on which Borrowers relied for remand were inapplicable.


As you may recall, once a notice of removal has been filed, the state court is prohibited from proceeding with the case "unless and until the case is remanded."  28 U.S.C. § 1446(d).


In addition, under the so-called "prior exclusive jurisdiction" doctrine, which prevents both a state and federal court from asserting concurrent control over a single piece of property, once either a state or federal court has jurisdiction over the property, that property "is withdrawn from the jurisdiction of the courts of the other authority . . . ."  See State Engineer v. S. Fork Bank of Te-Moak Tribe of W. Shoshone Indians, 339 F.3 804, 809 (9th Cir. 2003).  See also United States v. One 1985 Cadillac Seville, 866 F.2d 1142, 1145 (9th Cir. 1989)(explaining that prior exclusive jurisdiction is a prudential, but mandatory, common law rule of judicial abstention). 


Also, under the "Colorado River abstention" doctrine, a federal court weighs certain factors to determine whether it should dismiss the federal suit because of the "presence of a concurrent state proceeding."  See Colorado River Water Conservation Dist. V. United States, 424 U.S. 800, 818 (1976)("Colorado River").


In rejecting Borrowers' arguments that their case should have been remanded to state court on grounds that either the prior exclusive jurisdiction doctrine, or the Colorado River abstention doctrine, mandated the federal court to do so, the Ninth Circuit concluded that neither doctrine applied in this case.   As the Court explained, the doctrine of prior exclusive jurisdiction applies to a federal or state court's jurisdiction over property only where the other court first asserted and then retained that jurisdiction in a separate, concurrent proceeding.  See, e.g., Chapman v. Deutsche Bank Nat'l Trust Co., 651 F.3d 1039, 1043 (9th Cir. 2011); United States v. Alpine Land & Reservoir Co., 174 F.3d 1007, 1012-14 (9th Cir. 1999).  Here, however, because Defendants properly removed the case, the state court no longer had jurisdiction over the property and was unable to retain such jurisdiction.  


Applying similar reasoning, the Ninth Circuit also determined that the Colorado River doctrine was inapplicable, noting that among the factors listed in Colorado River to ascertain whether a federal suit should be dismissed "due to the presence of a concurrent state proceeding" was whether a court previously exercised jurisdiction over the property that is the subject of the lawsuit.  Colorado River, 424 U.S. at 818. Thus, pointing out again the absence of any concurrent state proceedings in this case, the Court concluded that the Colorado River doctrine did not apply here.


Accordingly, the Ninth Circuit affirmed the lower court's rulings.




Ralph T. Wutscher
McGinnis Wutscher Beiramee LLP
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Chicago, Illinois 60602
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