Unreported / Non-Citable
Background
Plaintiff Crystal M. Williams filed a complaint in Alameda County Superior Court on September 1, 2026, alleging that defendants acted unlawfully in servicing, collecting, and foreclosing on a debt secured by her real property, and that a foreclosure sale was imminent. The state court granted a temporary restraining order on September 18 and continued a preliminary injunction hearing to October 29. On October 2, 2026, defendants removed the case to federal court invoking diversity jurisdiction. Plaintiff is a citizen of California. The complaint names four defendants: Specialized Loan Servicing LLC (SLS), NewRez LLC dba Shellpoint Mortgage Servicing, MEB Loan Trust IV, and The Mortgage Law Firm, PLC. The first three defendants are citizens of Delaware and New York, but The Mortgage Law Firm, PLC is incorporated in California and maintains a California address, making it a citizen of California.
Defendants' notice of removal attempted to avoid the complete diversity problem by characterizing The Mortgage Law Firm as a "nonparty" or nominal defendant. They pointed to a declaration of non-monetary status the firm filed in state court on September 28, 2026, under California Civil Code § 2924l, which was uncontested by plaintiff. Defendants argued this filing made the firm a nonparty, obviating its citizenship for diversity purposes. The court evaluated whether the firm was a nominal party at the time of removal and whether the § 2924l declaration had taken effect.
The Court’s Holding
The court held that it lacks subject matter jurisdiction because complete diversity is absent. The Mortgage Law Firm, PLC is a citizen of California, sharing citizenship with plaintiff. The court rejected defendants' argument that the firm is a nominal defendant for two independent reasons. First, the § 2924l declaration was procedurally defective for removal purposes because the 15-day objection period had not expired at the time of removal. The firm filed its declaration on September 28, 2026, and defendants removed on October 2, 2026—only four days later. Jurisdiction is assessed at the time of removal, and a party does not become a nonmonetary/nominal party under § 2924l until the 15-day period passes without objection. Numerous California district courts have declined to afford nominal status to defendants who removed prematurely before the § 2924l period expired.
Second, even absent the procedural defect, the court could not conclude the firm is a nominal defendant on the merits. A trustee is not nominal where the complaint contains substantive allegations against it or seeks money damages from it. Here, plaintiff alleges "[d]efendants' unlawful conduct" collectively, that "[e]ach Defendant was acting in concert with each remaining Defendant," and brings her first and sixth causes of action against "all defendants." The complaint seeks money damages and a judgment "against Defendants." On these allegations, the firm's role is not merely ministerial. Because defendants failed to carry their burden to establish complete diversity, the court remanded the action to Alameda County Superior Court. The court also noted it was not convinced the amount-in-controversy requirement was met, given plaintiff's prayer for $25,000 in damages, allegations of fluctuating debt amounts, and Ninth Circuit caution against equating the amount in controversy with the property value or indebtedness in foreclosure injunction cases.
Key Takeaways
- A defendant's citizenship is assessed at the time of removal; a § 2924l declaration of non-monetary status does not render a trustee a nominal party until the 15-day objection period expires without objection.
- Premature removal before the § 2924l period runs preserves the trustee's citizenship for diversity analysis, defeating complete diversity if the trustee shares the plaintiff's state citizenship.
- Even if the statutory period had run, a trustee is not a nominal party when the complaint alleges substantive wrongdoing against all defendants collectively and seeks monetary relief against them.
- The removing defendant bears the burden of establishing complete diversity; the removal statute is strictly construed against removal jurisdiction in the Ninth Circuit.
- Courts may not grant non-monetary status under § 2924l in federal court under the Erie doctrine, so the issue cannot be cured post-removal.
Why It Matters
This order reinforces the Ninth Circuit's strict construction of the removal statute against federal jurisdiction and clarifies the timing requirement for Cal. Civ. Code § 2924l declarations in the removal context. It holds that a trustee's nominal status under state law is not effective for federal jurisdictional purposes until the statutory 15-day objection window closes, meaning defendants who remove too early cannot avoid the trustee's citizenship. The decision also reaffirms that substantive allegations of concerted wrongdoing and requests for damages against a trustee preclude nominal-party treatment, and that Erie bars federal courts from granting § 2924l status post-removal. Practitioners must ensure the § 2924l period has fully elapsed before removing, or be prepared to establish diversity through other means.