United States District Court, S.D. Texas, Houston Division
MEMORANDUM AND OPINION
Rosenthal Chief United States District Judge.
plaintiff, DHI Holdings, moved to remand this
mortgage-foreclosure suit to state court, arguing that this
court lacks subject-matter jurisdiction. (Docket Entry No.
12). The defendants responded. (Docket Entries No. 13, 14).
Defendant Specialized Loan Servicing did not formally move
for sanctions, but characterizes the remand motion as brought
in bad faith and frivolous, and seeks attorney's fees.
(Docket Entry No. 13). Based on the briefs, the record, and
the applicable law, the motion to remand is denied,
the reasons are explained in detail below.
The Legal Standard
defendant may remove a case to federal court when federal
subject-matter jurisdiction exists and the removal procedure
has been properly followed. See 28 U.S.C. §
1441; 28 U.S.C. § 1332(a). The burden to establish
federal jurisdiction is on the party invoking jurisdiction,
here the removing defendants. Howery, 243 F.3d at
916. The defendants removed on the basis of diversity
jurisdiction, which requires complete diversity. The relevant
citizenship is that of the real parties in interest in a
case; the 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, 460-61 (1980).
motion to remand presents a narrow issue. One of the
defendants in the case is U.S. Bank, as trustee for the
Terwin Mortgage Trust 2006-3 Asset-Backed Certificates,
Series 2006-3 (referred to in the briefs, and this opinion,
as the "2006-3 Trust" or the "Trust").
The issue is whether U.S. Bank as trustee, or instead the
2006-3 Trust itself, is the real party in interest in the
suit. If U.S. Bank is the real party in interest, the court
looks only to U.S. Bank's Ohio citizenship, and there is
complete diversity. If it is not, the court must look to the
citizenship of all of the Trust's member
certificateholders. Because there is no record evidence of
the certificateholders' citizenship, the presumption
against jurisdiction requires remand if the trust itself is
the real party in interest.
Supreme Court has consistently held that, when a trustee has
"certain customary powers to hold, manage, and dispose
of assets for the benefit of others[, ]" the trustee is
the real party in interest. Navarro, 446 U.S. at
464. The issue is therefore whether the Pooling Service
Agreement that created the 2006-3 Trust vests U.S. Bank with
powers sufficiently similar to those of a traditional trustee
to treat U.S. Bank as the real party in interest.
Americold Realty Trust v. Conagra Foods, Inc., 136
S.Ct. 1012, 1016 (2016), the Court held that a Maryland Real
Estate Investment Trust took the citizenship of its members
because it did not share the characteristics of a traditional
trust and the trust itself was the real party in interest.
Even though the entity was called a "trust" under
Maryland law, it could sue or be sued in its own name rather
than in the name of a trustee. Further, its members were in
substantially the same position as shareholders in a
joint-stock company when it came to managing the Trust's
activities and assets. Americold, 136 S.Ct. at 1016.
The Court distinguished Navarro by emphasizing that
the trustee in that case had legal title to the trust
property, the power to manage trust assets, and the power to
sue and be sued in its capacity as trustee, supporting the
conclusion that the trustee was the real party in interest.
Id.; Navarro, 446 U.S. at 465-66.
parties agree that, under the Pooling Service Agreement, U.S.
Bank, as trustee, had legal title to the trust assets.
(Docket Entry No. 12 at 15). DHI argues that U.S. Bank's
role as trustee does not include asset management for the
trust; rather, the PSA states that various servicers will
manage the trust assets. (Docket Entry No. 12 at 9-10, citing
Docket Entry No. 12-1 at 88, PSA § 3.06). However, as
the defendants correctly point out, the PSA also makes clear
that the servicers are acting on behalf of the trustee when
they manage trust assets. (Docket Entry No. 13, citing PSA
§ 3.01); see also Rodriguez v. Deutsche Bank
Nat'l Trust Co., No. CVH-16-1597, 2017 WL 371141, at
*3 (S.D. Tex. Jan. 26, 2017) (Miller, J.) (citing a provision
very similar to § 3.01 in concluding that the PSA
established a traditional trust and the trustee was the real
party in interest). Moreover, the PSA makes clear that U.S.
Bank can sue and be sued in its capacity as trustee. (Docket
Entry No. 12-1 at 168, PSA § 9.02(b)). U.S. Bank, as
trustee, has the powers necessary to make it the real party
in interest under Navarro.
argues that these powers are more illusory than real, because
the PSA gives certificateholders significant power over the
trustee's actions. First, DHI argues that U.S. Bank does
not truly control the trust assets or litigation because the
PSA allows 51% of the certificateholders to remove and
replace the trustee. (Docket Entry No. 12 at 16, citing
Docket Entry No. 12-1 at 169, PSA § 9.07). But, as the
defendants correctly point out, several courts in this
district have concluded that this removal power does not
deviate from a traditional trust agreement enough to take the
case out of Navarro and into Americold
territory. Bryant v. CIT Grp./Consumer Fin., No. CV
H-16-1840, 2017 WL 1344972, at *6 (S.D. Tex. Apr. 12, 2017)
(Miller, J.); May v. New Century Mortg. Corp., No.
H-16-1272, Dkt. 46, at 12 (S.D. Tex. Sept. 19, 2016) (slip
op.) (Lake, J.). Even more important, in Navarro
itself, the Trust instrument allowed the shareholders to
"elect and remove trustees;... terminate the trust or
amend the Declaration [of Trust];... and... approve any
disposition of more than half of the trust estate .. .
." Navarro, 446 U.S. at 465 n.4. The Court held
that these forms of control did not "strip the trustees
of the powers that make them real parties to the controversy
for purposes of diversity jurisdiction." Id.
argues that the fact that the certificateholders can require
the trustee to initiate litigation and undertake
investigations weighs in favor of concluding that the
certificateholders are the real parties in interest. (Docket
Entry No. 12 at 16-17, citing Docket Entry No. 12-1 at
166-67, PSA §§ 9.O2(a)(iii) and (a)(v)). But courts
in this district have rejected this power as a basis to
distinguish mortgage trusts from traditional trusts.
Rodriguez, 2017 WL 371141 at *3; cf.
Navarro, 446 U.S. at 465 n.4 (similar powers did not
make a trust rather than the trustee the real party in
interest). And the PSA limits these powers in ways
inconsistent with a traditional trust. For example, if
certificateholders direct the trustee to initiate a lawsuit
or investigation, they must indemnify the trustee for doing
so. These relatively minor "departures] from
conventional forms" are not dispositive.
Navarro, 446 U.S. at 465.
cases that DHI cites to the contrary are unpersuasive. In
Guillen v. Countrywide Home Loans, Inc., No.
4:15-CV-00849, 2016 WL 7103908 (S.D. Tex. Dec. 6, 2016), the
PSA lacked (or the removing party did not present argument or
evidence showing) several characteristics that this and other
courts emphasized in concluding that the trustee was the real
party in interest. In Rodriguez, the same judge that
decided Guillen analyzed a PSA significantly more
similar to the one in issue and concluded that the trustee
was the real party in interest. 2017 WL 371141, at *3. In
Pechua, Inc. v. Am. 's Wholesale Lender, No.
3:16-CV-364, 2017 WL 1177746, at *3 (S.D. Tex. Mar. 30,
2017), the court determined, based on a materially different
PSA, that the trustee did not have the power and duty to
manage trust assets for members' benefit or control the
litigation. That is not true here. In Pitts v. The Bank
of New York Mellon as Trustee, No. 4:16-CV-01410 [Docket
37] (S.D. Tex. February 14, 2017), the court's ruling
turned on the fact that, aside from the provision vesting
title to trust property in the trustee, the defendants
"direct[e]d the Court to no further statements
elucidating how the Trust operates" and therefore failed
to satisfy their burden of demonstrating that the trustee was
the real party in interest. Id. at 6. In Smith
v. The Bank of New YorkMellon, No. 4:16-cv-01669 [Docket
43] (S.D. Tex. January 18, 2017), the court similarly noted
that the removing defendants "merely recited the
Navarro standard and failed to provide any evidence
of the trustee's power under the PSA. Id. at 2.
So too in Swoboda v. Ocwen Loan Servicing, LLC, No.
4:13-cv-02986 [Docket 138] (S.D. Tex. Sept. 19, 2016) (noting
that "the parties make no attempt to classify" the
relevant entity "as a 'traditional
trust'"). DHF s citation to Juarez v. DHIMortg.
Co., Ltd, No. CVH-15-3534, 2016 WL 3906296, at *3 (S.D.
Tex. July 19, 2016), is unpersuasive. That case does not use
the correct analytical approach-required under
Navarro and Americold-that treats the
trustee's powers as the critical issue. Instead, the
court looked to the allegations in the complaint to determine
whether the plaintiff was "really" alleging that
the trust itself was liable. That is not the relevant
Bank, as trustee, is the real party in interest in this suit
and is a citizen of Ohio. There is complete diversity and the
case was properly removed. The motion to remand, (Docket
Entry No. 12), is denied. Specialized Loan Servicing's
request for attorney's fees for responding to the remand