9th Circuit Clarifies Federal Diversity Jurisdiction Amount-In-Controversy Requirement for Temporary Stays of Foreclosure
The Ninth Circuit recently held that neither the value of a property, nor the amount of the loan underlying the property, count toward the federal diversity jurisdiction amount-in-controversy threshold of $75,000 where the complaint seeks only a temporary stay of a foreclosure pending a review of a loan modification application. The decision, however, does not restrict those aforementioned values’ use in determining the amounts of controversy where the complaint seeks to permanently enjoin a foreclosure sale.
As background, in order to bring a case in federal court between citizens of different states, the value of the “object of the litigation” must exceed $75,000. In the case, the plaintiff-homeowners sought an order in state court temporarily enjoining the nonjudicial foreclosure sale of their home while their loan servicer reviewed their loan modification application. The loan servicer and investor defendants removed the case to federal court on the basis of diversity jurisdiction, asserting that the value of the property and amount of indebtedness on the note satisfied the court’s $75,000 amount-in-controversy requirement. The district court denied plaintiffs’ motion for remand, finding that the benefit resulting from a temporary stay of foreclosure would exceed $75,000, due to the value of the property and the amount of the property’s underlying loan.
The Ninth Circuit reversed the district court’s opinion, finding that the lower court improperly relied on cases in which plaintiffs sought a permanent or indefinite injunction of foreclosure. The panel wrote that those permanent injunction cases were incomparable to cases like the present one. The opinion reasoned that in permanent injunction cases, the “object of the litigation” is the ownership of the property itself; and therefore, the value of the property and the amount of indebtedness on the property are proper measures of the amount in controversy. However, in cases that seek a temporary stay pending a modification review, the object of the litigation is only a temporary injunction while the servicer considers the homeowner’s loan modification application. Thus—unlike borrowers who win permanent injunction cases—borrowers who seek temporary stays pending loan modification review would not be able to keep the property without paying the loan balance, even if they won the suit. Therefore, the amount in controversy in these types of temporary stay cases is not satisfied by the value of property or the amount of indebtedness.
Instead, loan servicers and investors who wish to remove to federal court on diversity grounds will need to demonstrate that more than $75,000 is in controversy by presenting evidence such as “the transactional costs to the lender of delaying foreclosure or a fair rental value of the property during the pendency of the injunction.” These amounts can be added to other compensatory damages sought by the plaintiff to determine whether the amount in controversy has been achieved.
The case, Corral et al. v. Portfolio Servicing, Inc., et al., is accessible here.
