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In re Ameriquest Mortgage Co. Mortgage Lending Practices Litigation

United States District Court, Seventh Circuit

September 3, 2013

NORTHWEST TITLE AND ESCROW CORPORATION, a Minnesota corporation; et al., Third-Party Defendants. AMERIQUEST MORTGAGE CO., a Delaware Corporation; TOWN & COUNTRY CREDIT CORPORATION, a Delaware corporation; and ARGENT MORTGAGE COMPANY LLC, a Delaware limited liability company, Defendants/Third-Party Plaintiffs,


MARVIN E. ASPEN, District Judge.

Presently before us is Certain Third-Party Defendants'[1] Motion to Dismiss for Lack of Subject Matter Jurisdiction and for a Suggestion of Remand (Dkt. No. 5101). Third-Party Defendants ask us to dismiss the Fifth Amended Third-Party Complaint ("FATPC") (Dkt. No. 2913) with respect to the many cases where Third-Party Plaintiffs[2] settled the underlying federal claims with the plaintiffs. Third-Party Defendants contend that we should decline to exercise supplemental jurisdiction over these cases now that the federal claims are gone. With respect to all other third-party claims, Third-Party Defendants ask that we suggest to the Judicial Panel on Multidistrict Litigation ("Panel") that it remand these remaining cases to the transferor courts. In short, Third-Party Defendants request that we disband the consolidated third-party action. As set forth below, we deny the motion.


The third-party action was not part of the MDL as assigned to us in 2005 but logically arose during the course of the MDL proceedings. In the FATPC, filed in July 2009, Ameriquest alleges that Third-Party Defendants-a group consisting of closing agents, title companies, title underwriters and mortgage brokers-are responsible for any violations of the Truth In Lending Act ("TILA"), as asserted against Ameriquest by the hundreds of thousands of borrower-plaintiffs in the underlying individual and class actions that spawned the MDL. Ameriquest contends that Third-Party Defendants breached their contracts with Ameriquest and engaged in negligent misrepresentation in connection with the closings of the mortgage loans with the borrower-plaintiffs. See, e.g., In re Ameriquest Mortgage Co. Mortgage Lending Practices Litig., No. 05 C 7097, 2010 WL 290493, at *1-4, 6-7 (N.D. Ill. Jan. 19, 2010).

Over the past several years, Ameriquest has settled thousands of borrower-plaintiff claims, as part of both class and individual actions. As Third-Party Defendants rightly point out, Ameriquest settled many (though not all) of the original borrower-plaintiff federal claims, and, in such cases, only the related third-party claims remain. Because the third-party action involves exclusively state-law claims, Third-Party Defendants contend that we should decline to exercise supplemental jurisdiction over these claims and release them from the MDL. Ameriquest opposes the motion on several grounds, not all of which require our attention.[3] Primarily, Ameriquest argues that we have supplemental jurisdiction and should retain the entire third-party action because common discovery remains outstanding. (Opp'n at 1-2, 6-9.)

As both parties explain in greater detail in their briefs, and in prior filings, Ameriquest and Third-Party Defendants have debated the proper scope of discovery in the third-party action for quite some time. (Mem. at 7, 15; Opp'n at 5-7, 11, 14-15; Certain Third-Party Defs.' Reply at 1-2.) In our July 26, 2012 order accepting the Terry v. Ameriquest Mortgage Company case as related to the MDL, we concluded that the reassignment would "make the most of coordinated discovery... into the practices of the third-party defendants, including their interpretations of the indemnity language" and closing protection letters. (7/26/12 Order, Case No. 08 C 2475, Ind. Dkt. No. 782.) Following that order, Ameriquest served discovery requests on Fidelity and MIS, focusing on both individual cases and some broader issues. When Third-Party Defendants objected to the scope of that discovery, Ameriquest filed a motion to compel discovery, which was heard by Magistrate Judge Denlow.[4] Although the parties were able to resolve many of their disputes before Judge Denlow, the ultimate question about the scope of discovery was left open. Judge Denlow orally denied Ameriquest's motion to compel "without prejudice pending either an agreement by the parties or proceeding before Judge Aspen to clarify the scope of what is going to be done in the MDL because the discovery will follow that scope." (9/20/12 Tr. of Hrg. at 17-18, Dkt. No. 5123-7.) He added in a related minute entry that "[t]he scope of discovery should be consistent with the scope of the third party proceedings that Judge Aspen will allow to take place in this court." (9/20/12 Min. Entry, Dkt. No. 5090.) Third-Party Defendants then filed the present motion.


A district court may retain supplemental jurisdiction over state law claims even after it has dismissed all claims over which it has original jurisdiction. 28 U.S.C. § 1367(c)(3). The Supreme Court has recognized that "pendent jurisdiction is a doctrine of discretion, not of plaintiff's right." United Mine Workers of Am. v. Gibbs, 383 U.S. 715, 726, 86 S.Ct. 1130, 1139 (1966); see also Kennedy v. Schoenberg, Fisher & Newman, Ltd., 140 F.3d 716, 727-28 (7th Cir. 1998); Kevin's Towing, Inc. v. Thomas, 217 F.Supp.2d 903, 910 (N.D. Ill. 2002). Accordingly, the choice under § 1367(c)(3) "is committed to [our] judgment" and is reviewed "only for an abuse of discretion." RWJ Mgmt. Co., Inc. v. BP Prods. N. Am., Inc., 672 F.3d 476, 479 (7th Cir. 2012); Whitely v. Moravec, 635 F.3d 308, 311 (7th Cir. 2011) (emphasizing our discretion under the statute to relinquish or exercise supplemental jurisdiction). In deciding whether to exercise supplemental jurisdiction, "a federal court should consider and weigh in each case, and at every stage of the litigation, the values of judicial economy, convenience, fairness, and comity." Carnegie-Mellon Univ. v. Cohill, 484 U.S. 343, 350, 108 S.Ct. 614, 619 (1988); see also City of Chi. v. Int'l Coll. of Surgeons, 522 U.S. 156, 173, 118 S.Ct. 523, 534 (1997); Kennedy, 140 F.3d at 727-28.

Generally speaking, "when all federal claims are dismissed before trial, the district court should relinquish jurisdiction over pendent state-law claims rather than resolving them on the merits." Wright v. Assoc. Ins. Cos. Inc., 29 F.3d 1244, 1252 (7th Cir. 1994); Leister v. Dovetail, Inc., 546 F.3d 875, 882 (7th Cir. 2008); Williams v. Rodriguez, 509 F.3d 392, 404 (7th Cir. 2007). Under such circumstances, the balancing of "judicial economy, convenience, fairness and comity... will point to declining to exercise [supplemental] jurisdiction." Wright, 29 F.3d at 1252; see Williams Elecs. Games, Inc. v. Garrity, 479 F.3d 904, 907 (7th Cir. 2007) (explaining that, in that event, "the economies from retaining jurisdiction... will be slight"). This general presumption arises because "a[t] that point, respect for the state's interest in applying its own law, along with the state's greater expertise in applying state law, become paramount concerns." Kennedy, 140 F.3d at 728 (citing Huffman v. Hains, 865 F.2d 920, 923 (7th Cir. 1989)); RWJ Mgmt Co., Inc., 672 F.3d at 479 (noting the concern over "federal intrusion into areas of purely state law").

Nonetheless, "[t]he presumption is rebuttable." RWJ Mgmt Co., Inc., 672 F.3d at 479; Williams Elecs. Games, Inc., 479 F.3d at 907. The Seventh Circuit has articulated three specific exceptions to this general presumption. Wright, 29 F.3d at 1251-52; see Dargis v. Sheahan, 526 F.3d 981, 990 (7th Cir. 2008); Williams, 509 F.3d at 404. The presumption may be overcome, and pendent jurisdiction appropriately retained, if "any of the following three circumstances exist: (1) the state law claims may not be re-filed because a statute of limitations has expired, (2) substantial judicial resources have been expended on the state claims, or (3) it is clearly apparent how the state claims are to be decided." Dargis, 526 F.3d at 990; Williams, 509 F.3d at 404.


A. Supplemental Jurisdiction

As a preliminary matter, the parties do not dispute that we have supplemental jurisdiction over the third-party action. Indeed, we find that the third-party action is unquestionably related to the claims raised in the MDL actions such "that they form part of the same case or controversy." 28 U.S.C. § 1367(a); see Gibbs, 383 U.S. at 72, 86 S.Ct. at 1138. For example, the FATPC alleges that Third-Party Defendants contracted to close loans for Ameriquest and, in so doing, agreed (but failed) to follow Ameriquest's instructions about the delivery to borrower-plaintiffs of the Notice of Right to Cancel forms ("NORTCs") required by TILA. ( See, e.g., FATPC ¶ 14; see id. ¶ 26.) Aside from the parties' disputes about the terms of any alleged contracts and the details of the alleged negligent misrepresentations, the third-party claims plainly "derive from a common nucleus of operative facts" shared with the claims stemming from the allegedly botched closings at issue in MDL. Sanchez & Daniels v. Koresko, 503 F.3d 610, 614 (7th Cir. 2007) (quoting Baer v. First Options of Chi., Inc., 72 F.3d 1294, 1299 (7th Cir. 1995)); Gibbs, 383 U.S. at 72, 86 S.Ct. at 1138. According to the FATPC, for example, if the borrower-plaintiffs did not sign or receive copies of their NORTCs or other materials, as alleged in the MDL, Third-Party Defendants bear responsibility for those failings. ( See, e.g., FATPC ¶¶ 13, 25, 27-28, 47, 49-50.)

The question before us, then, is not whether we have supplemental jurisdiction over the third-party action-we do-but whether we should continue to exercise it over third-party claims lacking a federal element.[5] Third-Party Defendants contend that the general presumption in favor of dismissal, pursuant to § 1367©, applies under these circumstances. (Mem. at 7-11.) Moreover, they argue that none of the three ...

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