Cory Stilp v. HSBC Bank USA, N.A. , 539 F. App'x 694 ( 2013 )

United States Court of Appeals
For the Eighth Circuit
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No. 13-1666
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Cory Stilp; Laura Stilp
lllllllllllllllllllll Plaintiffs - Appellants
v.
HSBC Bank USA, N.A., as Trustee for Wells Fargo Asset Securities Corp.; Wells
Fargo Bank, N.A.; Shapiro & Zielke, LLP; Reiter & Schiller, P.A.
lllllllllllllllllllll Defendants - Appellees
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Appeal from United States District Court
for the District of Minnesota - Minneapolis
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Submitted: July 23, 2013
Filed: September 25, 2013
[Unpublished]
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Before MURPHY, SHEPHERD, and KELLY, Circuit Judges.
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PER CURIAM.
This is another in a long line of similar cases brought by William Butler on
behalf of homeowners who have suffered home foreclosure. This appeal involves two
general claims: (1) the district court lacked subject matter jurisdiction to decide the
case and erred in failing to remand the case to the state court; and (2) the district court
erred in granting the motion to dismiss the remaining claims. For the reasons below,
we affirm.
I. Background
Cory and Laura Stilp (“the Stilps”) brought suit in state court against HSBC
Bank USA, N.A. and Wells Fargo Bank, N.A., collectively (“the Banks”), and the
attorneys for the foreclosing banks Reitter & Schiller, P.A. and Shapiro & Zielke,
LLP, collectively (“the Law Firms”), on multiple theories regarding an improper home
foreclosure. The Stilps brought three claims against the Banks: (1) a claim to
“determine adverse claims,” a quiet title action under Minn. Stat. § 559.01; (2) an
action for declaratory judgment under Minn Stat. § 555.01; and (3) a slander of title
claim. The Stilps brought two claims against the Law Firms: (1) a slander of title
claim; and (2) a claim of negligence per se for improper foreclosure practices.
The Banks immediately removed the case to federal district court. The Banks
and the Law Firms then moved to dismiss for failure to state a claim. The Stilps
moved to remand the case to state court because there was not complete diversity
among the parties. Both the Stilps and the Law Firms are residents of Minnesota, but
the Banks and the Law Firms argued that the Law Firms were fraudulently joined to
the action in order to defeat diversity jurisdiction. The district court1 found there was
no basis in law to any of the claims brought against the Law Firms. Because the non-
diverse parties were fraudulently joined, the district court found they did not defeat
jurisdiction. On that basis, the district court denied the Stilps’ motion to remand.
Having found the court had subject matter jurisdiction, the district court next
considered the motions to dismiss under Federal Rule of Civil Procedure 12(b)(6).
1
The Honorable Ann D. Montgomery, United States District Judge for the
District of Minnesota.
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The district court noted that nearly identical claims had recently been dismissed in
very similar cases. Relying on the prior cases, the district court found the Stilps had
failed to state a claim on which relief could be granted under any of their theories.
On appeal, the Stilps argue the district court improperly denied their motion for
remand, but they have dropped all theories against the Banks other than the quiet title
action. The Banks have moved for sanctions against Mr. Butler on the ground that the
Stilps’ appeal is frivolous.
II. Discussion
A. Motion to Remand
“The existence of subject-matter jurisdiction is a question of law that this court
reviews de novo.” ABF Freight Sys., Inc. v. Int’l Bhd. of Teamsters, 645 F.3d 954,
958 (8th Cir. 2011) (citation omitted). The Stilps argue that the district court erred in
finding that the Law Firms had been fraudulently joined. If the Law Firms were not
fraudulently joined, then removal was improper and the district court should have
remanded the case to the state court because of a lack of complete diversity. See
Exxon Mobil Corp. v. Allapattah Servs., Inc., 545 U.S. 546, 553 (2005) (noting the
requirement of complete diversity between all plaintiffs and all defendants); see also
Horton v. Conklin, 431 F.3d 602, 605 (8th Cir. 2005) (holding that a violation of the
forum defendant rule is a jurisdictional defect). “[J]oinder is fraudulent when there
exists no reasonable basis in fact and law supporting a claim against the resident
defendants.” Filla v. Norfolk S. Ry. Co., 336 F.3d 806, 810 (8th Cir. 2003) (quotation
omitted); see also Karnatcheva v. JPMorgan Chase Bank, N.A., 704 F.3d 545, 546
(8th Cir. 2013) (finding fraudulent joinder where “claims against a resident law firm
had no reasonable basis in law and fact under Minnesota law”).
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The Stilps’ claim of slander of title against the Law Firms has no reasonable
basis in law and fact. As we have recently stated in a case also brought by Mr. Butler:
Where attorneys act within the scope of their employment, Minnesota
law provides protection from liability to third parties. McDonald v.
Stewart, 289 Minn. 35, 182 N.W.2d 437, 440 (1970). Absent knowing
participation in fraud, none of the work performed by [the law firm] as
foreclosing attorney for Aurora can give rise to an actionable claim. See
id. Minnesota court rules, like the Federal Rules of Civil Procedure,
require fraud to be pled with particularity. See Minn. R. Civ. P. 9.02.
To pierce [the law firm’s] professional immunity by adequately pleading
fraud, Homeowners must plead the circumstances of fraud “with
particularity.” Great Plains Trust Co. v. Union Pac. R.R. Co., 492 F.3d
986, 995 (8th Cir. 2007) (quoting Fed. R. Civ. P. 9(b)).
Murphy v. Aurora Loan Servs., LLC, 699 F.3d 1027, 1031 (8th Cir. 2012). “Rule
9(b) requires plaintiffs to plead ‘the who, what, when, where, and how: the first
paragraph of any newspaper story.’” Summerhill v. Terminix, Inc., 637 F.3d 877, 880
(8th Cir. 2011) (quoting Great Plains Trust, 492 F.3d at 995). The Stilps fail to allege
with particularity any reasonable basis for finding the Law Firms knowingly
participated in a fraud. See Murphy, 699 F.3d at 1031 (distinguishing between
negligent misrepresentation and knowing participation in fraud). Without knowing
participation in a fraud, the Law Firms are protected from liability.
The Stilps also assert that the Law Firms were negligent per se in their
representation and therefore somehow liable to the Stilps pursuant to Minn. Stat.
§§ 580.02 and 580.05. We find no reasonable basis in law or fact for this claim either.
The district court noted that “[n]o state or federal court has ever found a violation of
Minn. Stat. §§ 580.02 or 580.05 to be negligence per se,” Stilp v. HSBC Bank USA,
N.A., No. 12-3098, 2013 WL 1175025, at *2 (D. Minn. Mar. 20, 2013), and the Stilps
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offer nothing additional to support the validity of this claim. Regardless of the claim’s
validity, however, the Stilps again fail to specify how the Law Firms knowingly
participated in a fraud. We conclude that the Law Firms were indeed fraudulently
joined and the district court was correct to deny the Stilps’ motion to remand.
B. Quiet Title Action
“We review de novo the district court’s grant of a motion to dismiss under Rule
12(b)(6), construing all reasonable inferences in favor of the nonmoving party.”
Dunbar v. Wells Fargo Bank, N.A., 709 F.3d 1254, 1256 (8th Cir. 2013) (quotation
omitted). “[I]n a diversity suit such as this one, ‘[w]e apply federal pleading
standards—Rules 8 and 12(b)(6)—to the state substantive law to determine if a
complaint makes out a claim under state law.’” Dunbar, 709 F.3d at 1257 (quoting
Karnatcheva, 704 F.3d at 548). The Stilps have dropped all other claims and are only
pursuing the quiet title action on appeal. We have repeatedly dismissed nearly
identical claims as insufficiently pled. See, e.g., Dunbar, 709 F.3d at 1257 (dismissing
claim for quiet title); Karnatcheva, 704 F.3d at 548 (finding that, because plaintiffs
failed to offer any support for a quiet title claim “other than labels and conclusions,”
the claim was properly dismissed). After careful review, we conclude the district
court was correct that the Stilps failed to plead sufficient facts to make a plausible
claim under Minn. Stat. § 559.01.
C. Motion for Sanctions
Finally, the Banks have moved for sanctions against Mr. Butler for proceeding
with a frivolous appeal. “Under Rule 38, an appeal is frivolous when the result is
obvious or when the appellant’s argument is wholly without merit.” Misischia v. St.
John’s Mercy Health Sys., 457 F.3d 800, 806 (8th Cir. 2006) (quotation omitted).
While the motion may have some merit, we decline to impose sanctions in this case.
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III. Conclusion
For the reasons above, we affirm the district court.
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