Unreported / Non-Citable
Background
Jerry Wagner and Danny Wagner sued LoanDepot.com, LLC and Freedom Mortgage Corporation over a loan and foreclosure involving a Bakersfield, California property. Their first amended complaint included a federal claim under 26 U.S.C. § 7434 and incorporated claims under the Fair Debt Collection Practices Act, prompting Freedom to remove the case to the Eastern District of California on federal question grounds. The district court adopted findings and recommendations denying the plaintiffs' initial motion to remand, finding that the federal claim supported jurisdiction, but later granted the defendants' motions to dismiss the first amended complaint with leave to amend after concluding the allegations failed to satisfy the heightened pleading standard of Rule 9(b) for the sole federal claim and declining supplemental jurisdiction over the remaining state law claims.
The plaintiffs then filed a second amended complaint on July 28, 2026, asserting eight causes of action arising solely under California law, including violations of the California Homeowner Bill of Rights, breach of contract, the Rosenthal Act, unfair competition, and declaratory relief. The operative pleading expressly disclaimed any federal basis for relief, alleging that all claims arise solely under California statutory and common law and that plaintiffs seek no relief under federal statutes or the U.S. Constitution. The plaintiffs moved to remand on August 24, 2026; Freedom opposed, while LoanDepot filed no opposition, which the magistrate judge construed as non-opposition under Local Rule 230(c). The presiding district judge referred the motion to the undersigned magistrate judge for findings and recommendations on October 14, 2026.
The Court’s Holding
The magistrate judge recommends granting the motion to remand. Although removal jurisdiction is generally assessed at the time of removal, the Supreme Court's 2025 decision in Royal Canin U.S.A., Inc. v. Wullschleger holds that when an amendment excises the federal law claims that enabled removal, the court loses supplemental jurisdiction over the related state law claims and the case must return to state court. Because the operative second amended complaint no longer asserts any federal cause of action, the magistrate judge recommends concluding that the court lacks subject matter jurisdiction and has no discretion to retain the state law claims.
The magistrate judge notes that Royal Canin abrogated prior Ninth Circuit precedent permitting district courts to retain supplemental jurisdiction after the federal basis was extinguished, citing Walker v. State, 158 F.4th 971, 980 (2025). Because remand is required under 28 U.S.C. § 1447(c), the recommendation does not reach the plaintiffs' remaining arguments about procedural defects in removal. The recommendation also proposes that the defendants' pending motions to dismiss and requests for judicial notice be remanded for action in state court. The findings and recommendations are subject to a 14-day objection period before the assigned district judge.
Key Takeaways
- The magistrate judge recommends that when a plaintiff amends a complaint to remove the federal claims that justified removal, the federal court loses supplemental jurisdiction over the remaining state law claims and must remand the case to state court.
- The Supreme Court's 2025 decision in Royal Canin abrogated Ninth Circuit precedent that had allowed district courts to retain supplemental jurisdiction after the federal jurisdictional basis disappeared.
- A defendant's failure to file any opposition to a motion to remand may be construed as non-opposition under Local Rule 230(c) in the Eastern District of California.
- Because the magistrate judge recommends remand for lack of subject matter jurisdiction, the recommendation does not address whether the removal was procedurally defective.
- The magistrate judge recommends that pending motions to dismiss that have not been resolved be remanded along with the case for the state court to address.
Why It Matters
This recommendation illustrates the practical effect of the Supreme Court's Royal Canin decision on removal practice: plaintiffs who amend to eliminate federal claims can force remand even after a federal court has ruled on the merits of those claims. The recommendation confirms that federal courts cannot exercise discretion to keep state law claims once the federal hook is gone, marking a clear shift from prior Ninth Circuit practice. Because subject-matter jurisdiction can never be waived or forfeited and courts are obligated to consider it sua sponte, the magistrate judge was required to recommend remand regardless of the parties' positions.
For litigants in mortgage and foreclosure disputes, the case underscores the strategic importance of pleading choices. By abandoning the federal Section 7434 claim after it was dismissed under Rule 9(b), the plaintiffs effectively chose their preferred state court forum for their California statutory and common law claims, including those under the Homeowner Bill of Rights. Because remand is required once subject matter jurisdiction is lacking, the magistrate judge did not reach the procedural-defect arguments.