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Pechua, Inc. v. America's Wholesale Lender

United States District Court, S.D. Texas, Galveston Division

March 30, 2017

PECHUA, INC., Plaintiff,
v.
AMERICA'S WHOLESALE LENDER, et al, Defendants.

          MEMORANDUM OPINION AND ORDER

          George C. Hanks Jr. United States District Judge.

         Before the Court is Pechua Inc.'s (“Pechua”) Motion to Remand. Dkt. 12. Pechua argues that the Defendants did not provide sufficient evidence of the parties' complete diversity of citizenship in their Notice of Removal. Dkt. 1. Pointing to recent United States Supreme Court precedent, Pechua argues that in these circumstances, the citizenship of the trust-and not the trustee-controls for the purpose of determining diversity. Based upon the motion and the parties' subsequent filings, and for the reasons that follow, the Court will GRANT Pechua's motion to remand.

         I. Background

         Pechua is a Nevada corporation with a lien on subject property located in Brazoria County, Texas. The Deed of Trust specifies that federal law and Texas state law govern. Pechua filed Plaintiff's Original Petition and Application for Ex Parte Temporary Restraining Order and Temporary Injunction in the 239th Judicial District Court of Brazoria County, Texas. Dkt. 1-2. Pechua named the following entities as defendants: 1) America's Wholesale Lender (“AWL”); 2) Structured Asset Securities Corporation Mortgage Loan Trust, Mortgage Pass-Through Certificates Series 2006-BC5 (“Trust”); 3) Specialized Loan Servicing, LLC (“SLS”); 4) Bank of America, N.A. (“BANA”); and 5) Mortgage Registration Systems, Inc. (“MERS”). Pechua sought declaratory relief regarding the statute of limitations and the Defendants' lack of standing to foreclose. Pechua also sought quiet title and brought claims in trespass, negligence per se, gross negligence, and for violations of the Texas Civil Practice and Remedies Code.

         The Removal Defendants'[1] timely filed Notice of Removal states that U.S. Bank, N.A., (“U.S. Bank”) as Trustee for the Structured Asset Securities Corporation Mortgage Loan Trust Mortgage Pass-Through Certificates Series 2006-BC5 was incorrectly sued as the trust itself. It further alleges that U.S. Bank is the correct party to be sued.[2] The Notice of Removal argued that this Court has subject matter jurisdiction due to complete diversity of citizenship between the parties. The Notice based this conclusion on the citizenship of U.S. Bank and the other named defendants-not on the citizenship of the members of the trust. It is undisputed that a sufficient amount in controversy exists to confer federal subject matter jurisdiction. The diversity of citizenship among the non-trust entities is likewise undisputed. Determining the appropriate citizenship of the trust is therefore the sole issue before the Court.

         II. Analysis

         A. Standard of Review

         Generally, a defendant may remove to federal court any state court civil action over which the federal court would have “original jurisdiction.” 28 U.S.C. § 1441(a); see Gasch v. Hartford Acc. & Indem. Co., 491 F.3d 278, 281 (5th Cir.2007). Federal courts have “original jurisdiction” over civil actions where the parties are diverse and the matter in controversy exceeds the sum or value of $75, 000, exclusive of interests and costs. 28 U.S.C. § 1332(a). However, such diversity jurisdiction requires complete diversity-that is, the citizenship of each plaintiff must be diverse from the citizenship of each defendant. See, e.g., Caterpillar Inc. v. Lewis, 519 U.S. 61, XX (1996). “[D]oubts regarding whether removal jurisdiction is proper should be resolved against federal jurisdiction.” Acuna v. Brown & Root Inc., 200 F.3d 335, 339 (5th Cir.2000). The removing party therefore bears the burden of showing by a preponderance of the evidence that removal is proper. Manguno v. Prudential Prop. & Cas. Ins. Co., 276 F.3d 720, 723 (5th Cir.2002).

         B. Applicable Law

         Artificial entities are not ‘citizens' under the law; they instead retain the citizenship of their individual members. However, courts have carved out exceptions for corporations and national banks, which are treated as citizens for diversity purposes. Navarro Sav. Ass'n v. Lee, 446 U.S. 458, 461 (1980). A corporation is a citizen of both the state where it is incorporated and of the state where its principal place of business is located. 28 U.S.C. § 1332(c)(1). A national bank “is a citizen of the State in which its main office, as set forth in its articles of association, is located.” Wachovia Bank, N.A. v. Schmidt, 546 U.S. 303, 307 (2006).

         The motion before the Court requires it to determine the citizenship of a trust for which the trustee is a national bank. Under Texas law, the term “trust” refers to “the fiduciary relationship governing the trustee with respect to the trust property.” Huie v. Deshazo, 922 S.W.2d 920, 926 (Tex. 1996). Texas requires plaintiffs to make the trustee a party to the action in order to obtain relief against the trust. Ray Maloolv Trust v. Juhl, l86 S.W .3d 568, 570 (Tex. 2006). Texas law acknowledges several entities that are termed “trusts” but that are not subject to the law surrounding traditional trusts. See, e.g., Tex. Prop. Code Ann. § 111.003(3). These “business trusts” are instead viewed as unincorporated associations. May v. New Century Mortgage Corp., CIVIL ACTION NO. 4:16-cv-1272 (S.D. Tex. Sept. 16, 2016).

         Courts have long grappled with determining the citizenship of trusts. The United States Supreme Court recently acknowledged that this confusion “is understandable and widely shared.” Americold Realty Trust v. Conagra Foods, Inc., 136 S.Ct. 1012, 1016 (2016). In Navarro Savings Association v. Lee, the Supreme Court reaffirmed the common law principle that trustees who are real parties to the controversy may “sue in their own right, without regard to the citizenship of the trust beneficiaries.” 446 U.S. 458, 465-66 (1980). A trustee is a real party to the controversy when its control over the trust's assets is “real and substantial.” Id. At 465. Navarro provides several factors for determining whether a trustee is a real party: whether the trustee has legal title; whether the trustee manages the assets; whether the trustee controls the litigation. Id.

         Nearly four decades later, the Court revisited citizenship determinations regarding trusts. In Americold Realty Trust v. Conagra Foods, Inc., the Court found that a real estate investment trust created by Maryland statute took the citizenship of its members. 136 S.Ct. 1012, 1014 (2016). In so finding, the Court reaffirmed the principle that- aside from the “limited exception” carved out for corporations-entities took the citizenship of their members. Id. At 1015-16. The Court also rejected the Plaintiff's argument that Navarro stands for the proposition that “anything called a ‘trust' possesses the citizenship of the trustees alone, not its shareholder beneficiaries as well.” Id. at 1016. The Court distinguished between ‘traditional trusts'-less a legal entity than a fiduciary relationship-and so-called ‘business trusts'-that is, entities that are called ‘trusts' but “have little in common with this traditional template.” Id. According to the Court, neither the “oft-repeated rule” (that an unincorporated entity possesses the citizenship of its members) “nor Navarro limits an entity's membership to its trustees just because the entity happens to call itself a trust.” Id. Increasingly, courts within the United States Fifth Circuit have read Americold as a mandate to analyze whether a corporate or national bank trustee is a real and substantial party before basing diversity jurisdiction upon the trustee's citizenship.[3]

         C. ...


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