9th Circuit Holds that FDCPA Claim Embedded in State Law UDAP Statute Was Insufficient to Maintain Federal Jurisdiction

In Nevada v. Bank of America Corp., — F.3d —-, 2012 WL 688552 (9^th Cir. 2012), the Court of Appeals for the Ninth Circuit held that a federal statute (the FDCPA) embedded in Nevada’s state law UDAP statutory claim did not raise a ‘substantial federal question’ sufficient to confer federal jurisdiction. 

Here, the Complaint raises exclusively state law claims. Nevada alleges that Bank of America violated the DTPA and the Consent Judgment. The Complaint does allege misrepresentations about the federal HAMP program and violations of the Fair Debt Collection Practices Act (“FDCPA”), 15 U.S.C. § 1692 et seq. Specifically, the Complaint alleges that Bank of America “[m]isrepresent[ed] to consumers that they must be delinquent on their loans in order to qualify for assistance, even though neither Bank of America’s proprietary programs nor the federal HAMP program requires that homeowners have missed payments.” The Complaint also alleges that Bank of America’s misrepresentations to credit agencies concerning consumers’ credit history “violate the Fair Debt Collection Practices Act, 15 U.S.C. §§ 1692e(2)(A) & (8), and, as a result, the Nevada Deceptive Trade Practices Act.”  ¶   [14] [15]  By so alleging, Nevada does not “necessarily raise a … substantial” issue of federal law. Grable, 545 U.S. at 314. The “mere presence of a federal issue in a state cause of action does not automatically confer federal-question jurisdiction.” Merrell Dow Pharms. Inc. v. Thompson, 478 U.S. 804, 813, 106 S.Ct. 3229, 92 L.Ed.2d 650 (1986). The federal issues here are not “pivotal” to Nevada’s case. Lippitt v. Raymond James Fin. Servs. Inc., 340 F.3d 1033, 1046 (9th Cir.2003). The gravamen of the Complaint is that Bank of America violated Nevada’s DTPA through numerous misrepresentations, some about the HAMP program, and some which also violate the FDCPA. For example, Nevada alleges that Bank of America violated the DTPA by: “promising to act upon requests for mortgage modifications within a specific period of time” and then failing to do so; giving consumers “false assurances that their homes would not be foreclosed while their requests for modifications were pending”; providing “inaccurate and deceptive reasons for denying … requests for modifications”; and “misrepresenting that consumers [had] been approved for modifications.” “When a claim can be supported by alternative and independent theories—one of which is a state law theory and one of which is a federal law theory—federal question jurisdiction does not attach because federal law is not a necessary element of the claim.” Rains v. Criterion Sys., Inc., 80 F.3d 339, 346 (9th Cir.1996).  ¶  Nor does the Complaint’s reference to the FDCPA necessarily raise a substantial issue of federal law. The Nevada DTPA includes a “borrowing” provision, making it a violation of the DTPA to “[v]iolate[ ] a state or federal statute or regulation relating to the sale or lease of goods or services.” Nev.Rev.Stat. § 598.0923(3). California’s Unfair Competition Law (“UCL”), Cal. Bus. & Prof.Code § 17200, contains a similar “borrowing” provision, and “California district courts have held that mere references to federal law in UCL claims do not convert the claim into a federal cause of action.” Guerra v. Carrington Mortg. Servs. LLC, 2010 WL 2630278, at *2 (C.D.Cal. June 29, 2010) (citations omitted); see also Garduno v. Nat’l Bank of Ariz., 738 F.Supp.2d 1004, 1009 (D.Ariz.2010). Bank of America concedes that the mere use of a federal statute as a predicate for a state law cause of action does not necessarily transform that cause of action into a federal claim, but asserts that this case is an exception to the general rule because it poses substantial questions about the scope and applicability of the FDCPA—specifically, whether the FDCPA applies at all to mortgage loan servicers. However, the Supreme Court has cautioned against finding federal question jurisdiction on the ground that a case presents a novel issue of federal law: “We do not believe the question whether a particular claim arises under federal law depends on the novelty of the federal issue.” Merrell Dow, 478 U.S. at 817. Therefore, Nevada’s glancing reference to federal law is insufficient to confer federal jurisdiction over Nevada’s state law claims.