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Mortgage Fraud Case to Remain in Federal Court

(CN) - A mass action accusing Bank of America and others of deceptive mortgage lending belongs in federal court, despite minimal plaintiff commonality, the 9th Circuit ruled Wednesday.

Carla Visendi and 136 others had filed the 2011 lawsuit in Sacramento County Superior Court against 25 financial institutions they blamed for tanking property values and messing up their credit scores with "deceptive mortgage lending and securitization practices."

Based on the large number of plaintiffs, Bank of America removed the case to federal court under the Class Action Fairness Act. In a subsequent amended complaint, the plaintiffs tossed their original claims and instead accused the defendants of invalid assignment, mistake and negligence - all state-level claims. The new complaint also increased the number of plaintiffs to 160 and dropped the number of defendants to 15.

In a motion to dismiss, the defendants argued that the plaintiffs were misjoined because they were scattered throughout the country and got their loans from many different lenders. The plaintiffs argued that the banks could not challenge joinder because they had removed the case to federal court. The plaintiffs also moved to return the case to state court.

U.S. District Judge Morrison England agreed with the plaintiffs and sent the case back to Sacramento County Superior Court, but the federal appeals court reversed on Wednesday.

A unanimous three-judge panel in San Francisco found that the case was properly removed to federal court after the plaintiffs proposed a joint trial in state court. Proper plaintiff joinder has nothing to do with it, according to the ruling.

The post-removal conclusion that plaintiffs' claims were improperly joined does not affect the court's jurisdiction, because - at the time of removal - the plaintiffs proposed a joint trial," Judge Milan Smith wrote for the panel.

"This massive, multi-plaintiff lawsuit is a prototypical mass action subject to removal under CAFA," Smith added. "That the plaintiffs are misjoined does not undermine federal jurisdiction."

Because the plaintiffs are clearly misjoined, however, the panel ordered the District Court to dismiss without prejudice all of the plaintiffs save Visendi.

"Plaintiffs own separate and unrelated properties across the country, they entered into separate loan transactions, and their dealings with defendants were necessarily varied," Smith wrote. "Nothing unites all of these plaintiffs but the superficial similarity of their allegations and their common choice of counsel."

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