Quicken Loans v. Alig, 2013 WL 6671618 (4th Cir. Dec. 19, 2013).

The Fourth Circuit vacated an order of remand, holding that an unnamed defendant is not a party to the litigation, and thus, it was improper for the District Court to aggregate the unnamed defendant in a group for the purposes of the “at least 1 defendant” exception.

The plaintiffs were borrowers who filed an action in the state court against the mortgagee, a title insurance company, and appraisers alleging civil conspiracy, violation of the West Virginia Unfair or Deceptive Acts or Practices Act, violation of the Residential Mortgage Lender, Broker and Services Act, and unconscionable contract.  In essence, the plaintiffs complained that the mortgagee (“Quicken Loans”) originated unlawful loans in West Virginia and that the appraisers were complicit in the scheme.  The plaintiffs asserted that Quicken Loans would furnish appraisers with a suggested value, and after purportedly conducting the appraisal, appraisers arrived at the same value as the suggested by Quicken Loans.  The problem with that scheme, according to plaintiffs, was that the borrower would then close on a loan that was underwater from the beginning.

Quicken Loans removed the action to the federal court under CAFA.  The plaintiffs moved to remand the case to the state court asserting the local controversy exception.  The District Court agreed with the plaintiffs, and remanded the case.

Recall that, under local controversy exception, a federal court does not have a subject matter jurisdiction if:
(1)    more than 2/3rd of plaintiff class are citizens of the state where the suit was filed originally;

(2)     at least one defendant (a) is a defendant from whom members of the plaintiff class are seeking significant relief, (b) is a defendant whose conduct forms a significant basis for the proposed plaintiff class’s claims, and (c) is a citizen of the state in which the action originally was filed;

(3)    the principal injuries stemming from the conduct alleged in the complaint occurred in the state where the action was filed originally; and

(4)     in the three years before the filing of the class action complaint, no other similar class action was filed against any of the defendants on behalf of the same or other class.

The parties’ bone of contention was with the second prong, the “at least one defendant” rule.  The District Court had considered the defendants appraisers – which included both named and unnamed appraisers – as one group for the purposes of “at least one defendant” rule, and concluded that the appraisers formed the significant local defendant.

Here, the defendant appraisers included both named and unnamed appraisers.  The Fourth Circuit remarked that an unnamed member of a proposed but uncertified class is not a party to the litigation.  Consequently, the Fourth Circuit ruled that because the class of unnamed defendant appraisers were not a party to the lawsuit, it was improper for the District Court to consider them in deciding whether the plaintiffs had satisfied the “at least 1 defendant” prong.

Ultimately, the only issue left for the Fourth Circuit was to determine if the named defendant appraisers met the “at least 1 defendant” rule.  The Fourth Circuit remarked that it was unable to make that determination because the record was not developed enough.  Accordingly, the Fourth Circuit vacated the order of remand, and then “remanded” the case to the District Court to determine whether the named defendant appraisers satisfy at least 1 defendant requirement of the local controversy.