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Lewis v. Deutsche Bank National Trust Co.

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

April 13, 2017

KIMBERLY LEWIS, et al., Plaintiffs,
v.
DEUTSCHE BANK NATIONAL TRUST COMPANY, et al, Defendants.

          MEMORANDUM OPINION AND ORDER

          GEORGE C. HANKS JR. UNITED STATES DISTRICT JUDGE.

         Plaintiffs, Stephen Lewis and Kimberly Lewis, filed this lawsuit in state court to challenge a foreclosure upon their home. Plaintiffs filed suit in the 405th Judicial District Court of Galveston County, Texas, Cause No. 16-CV-398, against the following Defendants: Fremont Investment & Loan Corp. (“Fremont”); Deutsche Bank National Trust Company, as Trustee for Fremont Home Loan Trust 2004-4, Asset-Backed Certificates, Series 2004-4 (“Deutsche Bank”); Ocwen Loan Servicing, LLC (“Ocwen”); and Mortgage Electronic Registration Systems, Inc. (“MERS”).

         Plaintiffs' Original Petition alleged that, in June 2015, Deutsche Bank had improperly filed an expedited application to foreclose on their home, and that “[a]fter the Galveston County District Court signed a Rule 736 Order in favor of Deutsche Bank, Deutsche Bank noticed a sale of the Property for Tuesday, April 5, 2016.” Dkt. 1-2, pg. 5.[1] Plaintiffs brought claims for: (1) declaratory relief that “Deutsche Bank (as Trustee) is not the holder or owner of the primissory [sic] Note and that Deutsche Bank and Ocwen have or had no power of sale under the Deed of Trust in this case;” (2) declaratory relief to quiet title on the grounds that “Plaintiffs' legal ownership of the Property was superior to Deutsche Bank's claimed mortgage lien on the Property at the time of sale . . . [and] Deutsche Bank wrongly claims a secured monetary interest and estate in the Property . . . [and] [a]ll claims of Deutsche Bank, present and prior, are without and were without any right whatsoever, and Deutsche Bank has no right, estate, title, lien, power of sale, or any interest of any kind in or to the Property . . . due to the fact that Deutsche Bank lacks standing to foreclose as alleged in detail above.” Plaintiffs also alleged that “Deutsche Bank, in its role as Trustee has acted as Fremont Investment's assignee in conducting foreclosure activities against Plaintiff[s].” Finally, Plaintiffs asserted that Deutsche Bank and Ocwen were “debt collectors” under the Texas Debt Collection Act, and that Deutsche Bank violated that law when it “threatened to foreclose without being the actual holder of the debt instrument” and by filing the Rule 736 lawsuit in 2015.

         On May 16, 2016, Defendants Deutsche Bank, Ocwen, and MERS removed the lawsuit to this Court, asserting that this Court had diversity jurisdiction. Plaintiff's state court petition had alleged that Stephen and Kimberly Lewis were residents of Texas, and that the real property at issue was located in League City, Texas. Dkt. 1-2. Defendants' Notice of Removal contended that Defendant Deutsche Bank was a citizen of California, as “a national banking association pursuant to federal law” whose main office is located in Los Angeles, California. Dkt. 1.[2] Defendants contended that Defendant Ocwen was a citizen of the U.S. Virgin Islands because it was incorporated in the U.S. Virgin Islands, with its principal place of business in Frederiksted, U.S. Virgin Islands. Dkt. 1. Defendant MERS was alleged to be a citizen of Delaware and Virginia. Defendant Fremont was alleged to be a California corporation, with its principal place of business in California, and therefore a citizen of California.

         After the notice of removal was filed, the parties filed several motions for extensions of time and a joint motion for abatement, pointing to a possible settlement of the case. This case was abated on July 5, 2016, and then re-opened a few months later in October 2016. Eventually, in December 2016, Plaintiffs filed a motion to remand the case back to state court. Dkt. 19.

         Plaintiffs' motion to remand contends that this Court lacks diversity jurisdiction. Plaintiffs first contend that Defendants' Notice of Removal is defective because it fails to allege that the citizenship of the FHLT 2004-4 Trust, of which Deutsche Bank is the Trustee, is diverse from the citizenship of Plaintiffs. In other words, Plaintiffs contend that the Notice of Removal failed to allege that the FHLT 2004-4 Trust is not a citizen of Texas, and this failure requires remand. Further, Plaintiffs allege that the FHLT 2004-4 Trust is not a citizen of Texas “in light if [sic] the U.S. Supreme Court's March 2016 Americold decision, ” and therefore the Court must remand this case.

         Defendants respond that the citizenship of the FHLT 2004-4 Trust is irrelevant because the Trust itself is not the real party in interest in this litigation. Instead, Defendants contend that this Court should look only to the citizenship of Deutsche Bank. After reviewing the motion to remand, the response, the evidence submitted, the pleadings in this case, and the record of this case as a whole, the Court finds that the motion to remand should be DENIED.

         ANALYSIS

         A party may remove an action from state court to federal court if the federal court possesses subject matter jurisdiction over the action. 28 U.S.C. § 1441(a). Federal courts have subject matter jurisdiction over all civil actions where the matter in controversy exceeds $75, 000 and the parties are completely diverse. 28 U.S.C. § 1332. The latter issue, diversity, is the one in dispute here.

         Here, the Court focuses on the Plaintiffs' pleadings “as they existed at the time of removal.” Manguno v. Prudential Prop. & Cas. Ins. Co., 276 F.3d 720, 723 (5th Cir. 2002). But the Court “may be required to survey the entire record ... and base its ruling on the complaint, or undisputed facts, and on its resolution of disputed facts.” Aquafaith Shipping, Ltd. v. Jarrillas, 963 F.2d 806, 808 (5th Cir. 1992). Any “ambiguities are construed against removal, ” and “[t]he removing party bears the burden of showing that federal jurisdiction exists.” Manguno, 276 F.3d at 723.

         Plaintiffs' motion to remand asserts that this Court should, under Americold Realty Tr. v. Conagra Foods, Inc., 136 S.Ct. 1012, 1016 (2016), [3] immediately engage in an analysis of the citizenship of the FHLT 2004-4 Trust by looking to the citizenship of “all of its members/beneficiaries.” After considering the motion to remand and the applicable authorities, this Court disagrees.

         First, the Court begins with the rule that “a federal court must disregard nominal or formal parties and rest jurisdiction only upon the citizenship of real parties to the controversy.” Navarro Sav. Ass'n v. Lee, 446 U.S. 458, 461 (1980). “Whether a party is [formal or] ‘nominal' for removal purposes depends on ‘whether, in the absence of the [party], the Court can enter a final judgment consistent with equity and good conscience, which would not be in any way unfair or inequitable . . . .'” Acosta v. Master Maint. & Constr. Inc., 452 F.3d 373, 379 (5th Cir. 2006) (quoting Tri-Cities Newspapers, Inc. v. Tri-Cities Printing Pressmen & Assistants Local 349, 427 F.2d 325, 327 (5th Cir. 1970)); see also Cousins v. Turn, 9:16-CV-47, 2017 WL 426872, at *5 (E.D. Tex. Jan. 12, 2017), report and recommendation adopted, 9:16-CV-47, 2017 WL 413204 (E.D. Tex. Jan. 31, 2017) (noting, “Where a party to litigation asserts affirmative claims for relief, even if such parties are characterized as nominal defendants, those counterclaims elevate them to real parties in interest.”).

         Grappling with the language of Americold and Navarro, federal courts in Texas have taken different paths to determine whether a trustee, or the trust itself, is the real party to the controversy. See, e.g., Shastry v. U.S. Bank Nat'l Ass'n, 3:16-CV-3335-G-BN, 2017 WL 1102807, at *2, * 3 (N.D. Tex. Mar. 2, 2017), report and recommendation adopted, 3:16-CV-3335-G (BN), 2017 WL 1091650 (N.D. Tex. Mar. 23, 2017) (“Determinations about whether the trust or trustee is the real party to the action are informed by the duties that the trust has delegated to its trustee. Courts have long held that a trustee is a real party when the trust has ceded ‘certain customary powers to hold, manage, and dispose of assets' to the trustee and the trustee's actions or interests are the subject of the suit . . . But a trust is considered a real party to the action where the trust's own interests or own actions are the subject of the claims at issue.”); Rodriguez v. Deutsche Bank Nat'l Trust Co., CV H-16-1597, 2017 WL 371141, at *2 (S.D. Tex. Jan. 26, 2017) (looking to whether “the trustee is suing or is being sued in his or her own name, or if the trust is a traditional trust, ” and whether the trustees have “exclusive authority over the property (i.e. the declaration of the trust ‘authorizes the trustees to take legal title to trust assets, to invest those assets for the benefit of the shareholders, and to sue and be sued in their capacity as trustees . . .')”; Guillen v. Countrywide Home Loans, Inc., CV H-15-849, 2016 WL 7103908, at *5 (S.D. Tex. Dec. 6, 2016) (finding trust was the real party in interest even though plaintiff sued only trustee, not trust itself, noting “[b]ecause suing a trust in Texas and New York necessitates naming the trustee in the pleadings, then courts in these states must look to the substance of the complaint to determine the real party to the controversy, ” looking instead to the Pooling Agreement and allegations in complaint); Moore v. Ameriquest Mortgage Co., 4:16-CV-00380, 2016 WL 6159377, at *4 (E.D. Tex. Oct. 24, 2016) (looking to Pooling and Servicing Agreement for trust, finding under New York law that trustee was traditional trustee with “legal title and with it the power to hold, manage, and dispose of Trust assets, ” and that only trustee's citizenship was therefore relevant, but also finding that trust was only “a nominal party and may disregarded for purposes of diversity” because plaintiffs sought declaratory and monetary relief for claims arising from the improper transfers of Plaintiffs' loan and title, and court did not need the trust to be a party in order to grant a final judgment giving Plaintiffs all relief they sought); Juarez v. DHI Mortgage Company Ltd., No. H-15-3534, 2016 WL 3906296, at *3 (S.D. Tex. July 19, 2016) (finding trust to be a real and substantial party where “the complaint treats the 2004-68 Trust as [a] separate defendant from [the trustee] by alleging the trust itself wrongfully foreclosed on Juarez's property, ” and remanding because “the burden remains with the removing party to classify the trust, establish its citizenship, and prove complete diversity . . . [but] Defendants have not even attempted to classify the 2004-68 Trust or identify any of its members.”); Halley v. Deutsche Bank Nat'l Trust Co., CV H-15-1174, 2016 WL 3855872, at *1 (S.D. Tex. July 15, 2016) (where both parties contended the court had subject matter jurisdiction, and where trustee had filed counterclaims, looking only to citizenship of trustee under Americold and Navarro, concluding, “As a national bank association, Deutsche Bank is considered a citizen of the state in which its main office is located. Because Deutsche Bank has its main office in California, as specified in its articles of association, . . . Deutsche Bank is a citizen of California for purposes of diversity jurisdiction.”) (internal citations omitted).

         Ultimately, this Court finds that the approaches taken in cases such as Shastry, Rodriguez, and Moore are the most sound. Accordingly, the Court will look to the pleadings themselves to ask whether it is the trust's, or the trustee's, interests and actions at issue, as well as whether the trust, the trustee, or both, are named as parties to the lawsuit. In determining whether the trust or the trustee is the real party to the controversy at hand, the Court may also consider the duties that the trust has delegated to its trustee, i.e., whether it is a “traditional trust” in which “trustees have legal title to the ...


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