Brown v. Tax Ease Lien Investments, LLC

Citations: 77 F. Supp. 3d 598; 2015 U.S. Dist. LEXIS 2287; 2015 WL 128047Docket: Civil Action No. 3:14-CV-00335-JGH

Court: District Court, W.D. Kentucky; January 7, 2015; Federal District Court

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The case revolves around the implications of property tax delinquency in Kentucky, specifically the process when homeowners fail to pay and the Commonwealth sells their accounts to third-party collectors. Tax Ease Lien Servicing, LLC (TELS), a third-party collector, initiated foreclosure actions in Jefferson Circuit Court against properties owned by Rose Harper and Deddo Goldsmith, as well as Phillip and Karyn Julian, in separate claims filed in early 2013. The procedural history is complex, with defendants in the Harper Claim seeking to file a class action counterclaim and consolidate their case with the Julian Claim. The state court approved the consolidation and the first amended counterclaim, but TELS later moved to voluntarily dismiss its foreclosure complaints without a court ruling on that motion. Additionally, the defendants filed a motion to submit a second amended counterclaim to add more parties and claims. The court ultimately determines that it cannot definitively assert federal jurisdiction over the case and remands the entire matter to Jefferson Circuit Court.

Brown was not originally involved in either the Harper or Julian Claims but had a forbearance agreement with Tax Ease Lien Investments, LLC regarding a delinquent tax certificate. He, along with Cambrón, Leigh, and Walther III, filed the Brown Claim, asserting class action allegations under the Racketeer Influenced and Corrupt Organizations Act, along with related state law claims. The Brown Claim accused TELS, TELI, and others of conspiring to improperly inflate fees for collecting delinquent taxes, claiming that affiliate companies Blue Grass and Lien Data were used as shell companies to defraud taxpayers.

Following a series of legal motions and proceedings from August 2013 to January 2014, during which the state court dismissed some counterclaims, TELS sought to sever the Brown Claim from the foreclosure actions in the Harper and Julian Claims. TELS aimed to create two separate cases: one for the foreclosure actions under state law and another for the Brown Claim under federal law, potentially allowing for removal to federal court.

In April 2014, the state court issued an order granting the severance of the cases, recognizing the counterclaims as an intervening complaint and bifurcating them. The court sustained the motion to file a third amended counterclaim for the new plaintiffs but denied other aspects. Following this order, TELS removed the entire case to federal court, leading to a disagreement among parties regarding the implications of the state court's order, particularly Brown et al.'s request to remand the case back to state court after TELS voluntarily dismissed the Harper and Julian Claims.

Had the motion been granted, TELS would have ceased to be a plaintiff, but claims against TELS under federal law would remain removable. Brown et al. argue that the state court never ruled on this motion and that its order regarding TELS's motion to sever indicates bifurcated trials rather than complete severance into separate cases. Conversely, TELS and its affiliates view the state court order as a complete severance, making them defendants in distinct cases eligible for federal court removal.

Citing a 2011 amendment to 28 U.S.C. 1441(c), TELS asserts that they can remove the entire consolidated case, which includes both federal and unrelated state law claims. They argue that once removed, the court should sever and remand claims lacking original or supplemental jurisdiction. It is established that parties seeking removal must prove its propriety and meet jurisdictional venue requirements, with federal courts strictly construing removal jurisdiction due to federalism concerns, favoring remand to state court in cases of doubt.

The state court's April 2014 order is crucial, as TELS and its affiliates were the original plaintiffs in foreclosure actions. Federal removal statutes allow defendants to remove civil actions from state court if the federal court has original jurisdiction. The Sixth Circuit interprets this narrowly, emphasizing that only traditional defendants can seek removal. The Supreme Court has ruled that Congress intended to prevent plaintiff-directed removal based on counterclaims, establishing that a counterclaim defendant is not a 'defendant' eligible for federal removal. Despite both parties agreeing that a counterclaim generally does not allow for removal, the state court's order characterized the Brown Claim not as a counterclaim but as an intervention.

A party cannot be a counter-claimant without original claims against them; thus, Brown, Cambrón, Leigh, and Walther III were not counter-claimants in the consolidated Harper and Julian Claims. Intervening complaints do not support removal if they were not filed initially. For TELS's removal to be valid, a specific circumstance must circumvent the standard removal rules. One potential circumstance could be the voluntary dismissal of the Harper and Julian Claims, as case law indicates that plaintiffs control their complaints. If a plaintiff relinquishes claims, they lose their status as the master of the complaint. TELS originally filed foreclosure actions that were consolidated, leading to counterclaims from Harper, Goldsmith, and the Julians. Brown et al. later intervened with their claims against TELS. The state court dismissed the counterclaims before TELS's motion to voluntarily dismiss the Harper and Julian Claims was ruled on. If TELS had been allowed to dismiss, it would have shifted roles from plaintiff to defendant, potentially justifying removal jurisdiction. However, the state court's order did not grant this dismissal, and TELS's interpretation that the order severed the case and realigned the parties does not align with the explicit wording of the order. The court cannot conclude that the state court intended a severance instead of a bifurcation, as TELS had requested severance specifically for the Brown Claim, which involved federal law, separate from the state law actions of Harper and Julian.

Severance indicates a complete separation of claims into independent actions, potentially allowing for the removal of one action while the others remain. The court has previously suggested that severance and party realignment can trigger the right to remove, regardless of procedural nuances like different civil action numbers, as seen in Crump v. Wal-Mart Group Health Plan. However, bifurcation differs from severance; bifurcation refers to dividing a single case into stages (e.g., liability and damages), where the outcomes remain interdependent. A bifurcated trial results in one judgment, while severed claims become independent actions to be tried separately. The distinction is sometimes blurred in practice, with courts using the terms interchangeably. In the case at hand, TELS and affiliates argue that the state court bifurcated the Brown Claim, creating a separate suit. However, the court's explicit language indicates it only bifurcated the claims for efficiency, not severed them into independent suits. The state court referred to the Brown et al. counterclaim as an intervening complaint under CR 24.02, which allows intervention when there is a common question of law or fact with the main action. Thus, the state court intended to maintain a single suit while trying claims in phases.

A governmental officer or agency may intervene in legal actions when a party bases its claim or defense on a statute or executive order they administer, provided the intervention does not unduly delay or prejudice the original parties. The state court did not clearly separate the Brown Claim from the Harper and Julian Claims, suggesting that it was not treated as an independent matter. Instead of severing the Brown Claim, the state court bifurcated the case into phases, maintaining TELS and its affiliates as “plaintiffs” while allowing for separate handling of foreclosure actions and the Brown Claim. This bifurcation renders the case non-removable. The state court reclassified Brown et al. as intervenors rather than counterclaimants, which does not support removal. Federalism principles dictate a strict interpretation of removal statutes, allowing removal only by traditional defendants. Consequently, the Court determined that TELS and its affiliates failed to prove that removal was appropriate, leading to a decision to sustain the Motion to Remand of Brown et al. and remand the case to the Jefferson Circuit Court.