Deutsche Bank National Trust Co. v. Taylor, 2011 WL 1374988 (N.D. Ohio April 12, 2011).

Federal questions asserted in a counterclaim cannot confer federal jurisdiction, says the United States District Court for the Northern District of Ohio.

The plaintiff, Deutsche Bank,brought a foreclosure action in Ohio Common Pleas Court against the defendants, asserting states law claims only. The defendants asserted federal claims and a putative class action in their counterclaim. 

The defendant removed the action, relying on (1) 28 U.S.C. § 1332 (diversity of citizenship), (2) CAFA, and (3) 28 U.S.C. § 1331 (federal question jurisdiction). 

The District Court disagreed with all of the defendants’ arguments and granted Deutsche Bank’s motion to remand. And to add insult to injury, the court also denied the defendants’ motion to stay the foreclosure.    

First, the court found that removal based on diversity of citizenship was improper, because the defendants resided in Ohio where the action was originally filed. Further, the court observed that the defendants’ removal action was untimely, as they filed it more than a year after commencement of the case. Don’t forget readers, CAFA allows removal of a diversity case after one year has expired, and without regard to whether any defendant is a citizen of the State in which the action is brought. 

Second, the court held that the defendants had not met their burden to prove that the matter in controversy exceeded $5 million or that the purported class included more than one hundred members under CAFA.  

Finally, the court held that the defendants could not base their removal on federal questions raised in their counterclaim. The court noted that “[u]nder the ‘well pleaded complaint’ rule, a case arises under federal law only when a federal question appears on the face of the plaintiff’s complaint.” Thus, federal claims in a counterclaim cannot confer federal jurisdiction, “no matter how related to or otherwise intertwined” they are with the matters asserted in the complaint.

So the defendants are stuck in state court, and they probably will be foreclosed upon soon. Not their best day.