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Schaffer v. U.S. Bank Trust, N.A.

United States District Court, W.D. Texas, Austin Division

December 5, 2017

JOSEPH M. SCHAFFER, JR., Plaintiff,
v.
U.S. BANK TRUST, N.A., as trustee for LSF9 Master Participation Trust; WENDY ALEXANDER; STEVE UTLEY; TOBEY LATHAM; MICHAEL ZEINTZ; and MACKIE, WOLF, ZEINTZ, AND MANN, P.C.; Defendants.

          ORDER

          ROBERT PITMAN UNITED STATES DISTRICT JUDGE.

         Before the Court are several motions. The first is Plaintiff's Verified Memorandum in Support of Motion to Remand (“Motion to Remand”). (Dkt. 27). The second is Plaintiff's Opposed Motion to Stay Consideration of Defendant U.S. Bank Trust, N.A., Trustee for LSF9 Master Participation Trust's Motion to Dismiss (“Motion to Stay”). (Dkt. 29). The third is Defendant's Motion to Dismiss Amended Original Petition and Brief in Support (“Motion to Dismiss”). (Dkt. 19). Having considered the parties' submissions, the record, and the applicable law, the Court issues the following order.

         I. BACKGROUND

         Plaintiff alleges the following facts. Plaintiff bought a piece of property in Hays County, Texas, in January 2007. (Am. Compl., Dkt. 14, ¶ 16). As part of the purchase, Plaintiff executed a deed of trust and note with Bank of America (“BOA”). (Id. ¶¶ 16, 22). In November 2014, BOA assigned all of its interest in the deed of trust to LSF9 Mortgage Holdings, LLC. (Id. ¶ 24). In March 2015, LSF9 Mortgage Holdings, LLC assigned all of its interest in Plaintiff's deed of trust to Defendant U.S. Bank Trust, N.A., (“USBTNA”) as trustee for LSF9 Master Participation Trust (the “LSF9 Trust”). (Id. ¶ 25).

         On March 9, 2017, Defendant Mackie Wolf Zeintz & Mann, P.C. (“MWZM”) mailed a letter to Plaintiff notifying him that because he failed to cure his default, [1] his loan was being accelerated and his home would be foreclosed if he could not pay the full outstanding balance of the loan. (Notice of Reposting and Sale, Dkt. 14-2, at 32). On April 14, 2017, MWZM posted a notice of foreclosure sale naming Defendants Wendy Alexander, Tobey Latham, or Michael Zeintz[2] as substitute trustees. (Notice of Foreclosure Sale, Dkt. 14-2, at 33).

         On April 3, 2017, Plaintiff filed a petition in Hays County District Court alleging a number of claims related to the foreclosure. (State Pet., Dkt. 1-1, at 5). USBTNA removed to this Court several days later. (Not. Rem., Dkt. 1). In July 2017, Plaintiff filed his Amended Complaint, (Dkt.14), in which he alleges a number of claims: (1) Plaintiff received no notice of default from an entity with the right to enforce his note, (2) fraudulent foreclosure, (3) breach of contract, (4) breach of the implied covenant of good faith and fair dealing, (5) violations of the Texas Deceptive Trade Practices Act (“DTPA”), (6) a demand to produce the original promissory note, (7) a request for unspecified injunctive relief, (8) slander of title, and (9) a request for a declaratory judgment to quiet title in his favor. (Dkt. 14, at 15-37). USBTNA moved to dismiss Plaintiff's claims against it, (USBTNA Mot. Dismiss, Dkt. 19); Plaintiff then moved to remand the case to Hays County District Court, (Pl.'s Mot. Remand, Dkt. 27). While USBTNA's motion to dismiss was pending, Plaintiff asked the Court to stay its ruling on the motion until Plaintiff could conduct a limited amount of discovery. (Pl.'s Mot. Stay, Dkt. 29).

         Neither MWZM nor the Substitute Trustees have appeared in this case, nor has Plaintiff served them with his Amended Complaint. Moreover, USBTNA's Notice of Removal civil cover sheet indicates that neither MWZM nor the Substitute Trustees were served prior to removal. (Supplement to JS-44 Civil Cover Sheet, Dkt 1-3, at 2). After more than 90 days had elapsed since Plaintiff filed his Amended Complaint, the Court ordered Plaintiff to show cause as to why neither MWZM nor the Substitute Trustees had been served. (Dkt. 35). Instead of doing so, Plaintiff filed a voluntary dismissal signed by USBTNA in which he dismissed his claims against MWZM and the Substitute Trustees without prejudice under Federal Rule of Civil Procedure 41(a)(1)(A)(ii). (Dkt. 39).[3] At the time of this order, therefore, the only parties to this action are Plaintiff and USBTNA.

         I. PLAINTIFF'S MOTION TO REMAND

         Because Plaintiff's Motion to Remand concerns the Court's subject matter jurisdiction over this action, the Court will first address Plaintiff's Motion to Remand before addressing USBTNA's Motion to Dismiss.

         Plaintiff's state court petition and Amended Complaint allege claims only under Texas law, and USBTNA removed on the basis of the Court's diversity jurisdiction. (Dkt. 1, ¶ 5). USBTNA argues that complete diversity exists because Plaintiff is a citizen of Texas and USBTNA is a citizen of Delaware.[4] (Id. ¶¶ 6-7; USBTNA Response to Mot. Remand, Dkt. 34, at 4 n.4). Further, USBTNA points out that Plaintiff's state court petition and Amended Complaint each request damages of “over $100, 000.00 but not more than $2, 000, 000.00.” (See Dkt. 14-1, at 39). Accordingly, if this case were only between Plaintiff and USBTNA, the Court would have diversity jurisdiction and remand would be improper. See 28 U.S.C. § 1332(a); Cuevas v. BAC Home Loans Servicing, LP, 648 F.3d 242, 250 (5th Cir. 2011) (“When the district court has original subject matter jurisdiction over state law claims, the exercise of that jurisdiction is mandatory.”).

         Plaintiff nonetheless argues that this case should be remanded for two reasons: (1) because USBTNA's citizenship should be determined by the citizenship of the LSF9 Trust's certificateholders, which USBTNA has failed to establish; and (2) because the Substitute Trustees and MZWM are Texas residents. (Dkt. 27; Dkt. 14, ¶ 14). USBTNA responds that only its citizenship matters and that MWZM and the Substitute Trustees were improperly joined. (Dkt. 34, ¶ 1 n.2; Dkt. 1, ¶¶ 8-23). For the reasons discussed below, the Court holds that remand is inappropriate.

         A. USBTNA's Citizenship

         Plaintiff sued USBTNA in its capacity as trustee for the LSF9 Trust. For the purposes of establishing diversity jurisdiction, “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). In Navarro, the U.S. Supreme Court stated that “a trustee is a real party to the controversy for purposes of diversity jurisdiction when he possesses certain customary powers to hold, manage, and dispose of assets for the benefit of others.” Id. at 464. On the other hand, an unincorporated legal entity such as a trust “possesse[s] the citizenship of its members.” Americold Realty Tr. v. Conagra Foods, Inc., 136 S.Ct. 1012, 1016 (2016). As the Fifth Circuit recently explained, Navarro's rule “coexists” with Americold's, and that “if the trustee . . . is sued in the trustee's own name, then Navarro's rule controls.” Bynane v. Bank of N.Y. Mellon for CWMBS, Inc. Asset-Backed Certificates Series 2006-24, 866 F.3d 351, 358 (5th Cir. 2017).

         Plaintiff's position is that USBTNA is “not an active trustee whose control of the assets held in [its name] is real and substantial, ” and thus that USBTNA is not a real party to the controversy. (Dkt. 27, ¶ 12). To support his position, Plaintiff makes two arguments. The first is that USBTNA has not provided evidence that it has sufficient control over the LSF9 Trust to be a real party to the controversy. (Id. ¶ 8.I (“USBTNA has failed to produce the trust agreement that showed it had any active control over the trust.”)). The second is that USBTNA actually has “no authority or responsibility over the loans in the Trust, ” and that the true authority lies with the mortgage servicer, Caliber Home Loans, Inc. (“Caliber”). (Id. ¶ 10.B.c).

         Plaintiff's first argument is based on two cases from New York federal district courts that Plaintiff contends are significant for the present case: U.S. Bank Tr., N.A. v. Monroe, No. 115CV1480LEKDJS, 2017 WL 923326, at *1 (N.D.N.Y. Mar. 8, 2017) and U.S. Bank Tr., N.A. v. Dupre, No. 615CV0558LEKTWD, 2016 WL 5107123, at *1 (N.D.N.Y. Sept. 20, 2016). (Id. ¶¶ 7-9). In Monroe, USBTNA (there as plaintiff) failed to provide its articles of incorporation to establish its citizenship or allege anything concerning “the type of trust at issue [or] its degree of control over the trust assets.” 2017 WL 923326, at *3-5. In Dupre, the court noted the same deficiency with USBTNA's trust agreement-it was “almost completely redacted, ” showing only a portion of text “stat[ing] that U.S. Bank shall have only such rights, powers and duties as are specifically and expressly required by this Agreement.” 2016 WL 5107123, at *3-4 (quotation marks omitted). In both cases, the court dismissed USBTNA's complaint because USBTNA provided insufficient information for the court to determine if it had subject matter jurisdiction. Monroe, 2017 WL 923326, at *5; Dupre, 2016 WL 5107123, at *4.

         Contrary to Plaintiff's urging, neither case informs the disposition of this case. Even if the Court were to find those cases persuasive, the facts here are critically different. Unlike Monroe, USBTNA in this case has provided its articles of association to establish its own citizenship. (USBTNA's Certified Articles of Association, Dkt. 34-1). Unlike both Monroe and Dupre, USBTNA has provided the Court with a complete and unredacted copy of the trust agreement. (See Dkt. 43 (requesting in camera review); Dkt. 44 (agreeing to conduct in camera review)).

         More importantly, neither Monroe nor Dupre controls this Court's analysis. Instead, the Court looks to the Fifth Circuit, which has recently issued guidance about how to analyze diversity jurisdiction in cases such as this. See Bynane, 866 F.3d at 355-59. In Bynane, the Fifth Circuit made it clear that “if the trustee . . . is sued in the trustee's own name, then Navarro's rule controls.” Id. at 358. There, because the defendant bank “was sued in its capacity as trustee, ” the court held that “Navarro controls, and the only remaining question” was whether the defendant bank had “real and substantial control under Navarro's test. Id. at 357. Here, the Court agrees with USBTNA that, because Plaintiff sued USBTNA as trustee, the only remaining question is whether USBTNA is a “real part[y] to the controversy” under Navarro's test. Navarro, 446 U.S. at 465.

         This brings the Court to Plaintiff's second argument-that Caliber, not USBTNA, is the real party to the controversy. Plaintiff bases this argument on a May 2015 email from USBTNA to Plaintiff. (Dkt. 27, ¶¶ 10-11). In that email, an employee in USBTNA's Mortgage Research division told Plaintiff that USBTNA is “merely the trustee” and has “no involvement with the foreclosure process.” (May 2015 Email, Dkt. 27-6, at 2). USBTNA states that it “has no authority or responsibility to review and[/]or approve or disapprove” of the servicer's foreclosure action. (Id.). USBTNA then directs Plaintiff to contact Caliber with any questions about the foreclosure. (Id.). From this email, Plaintiff concludes that “the ROLE of the Trustee is being performed by the alleged servicer without any information, input, or feedback” from USBTNA, and that USBTNA is therefore not “a real party to the controversy.” (Dkt. 27, ¶¶ 10.B.c).

         Defendant responds that the email is irrelevant to the Fifth Circuit's analysis in these sorts of cases. (Dkt. 34, ¶ 8). The Court agrees that the degree to which USBTNA has delegated foreclosure decisions to the mortgage servicer is irrelevant to the jurisdictional analysis here.

         Instead of looking at the decisions a trustee delegates to a mortgage servicer, the Fifth Circuit focuses its Navarro analysis on the powers and limitations that the trust agreement vests in the trustee and the trust's beneficiaries. See Bynane, 866 F.3d at 357. In Bynane, the Fifth Circuit determined that the trustee was the real party in interest because the pooling and service agreement transferred “all right, title, and interest” in the pooled mortgage loans to the trustee. Id. The Fifth Circuit also considered the fact that “the certificateholders ha[d] only limited rights to vote or otherwise control the operation of the trust.” Id. In another post-Americold case, the Fifth Circuit similarly focused on the powers and limitations of the trustee and the trust beneficiaries. See Justice v. Wells Fargo Bank Nat'l Ass'n, 674 F. App'x 330, 332 (5th Cir. 2016), as revised (Mar. 22, 2017) (holding that the trustee was the real party in interest because it held “all the right, title and interest” in the trust). Moreover, district courts in this circuit have looked to the pleadings and to the trust agreement to determine subject matter jurisdiction under Navarro and Americold. See Lewis v. Deutsche Bank Nat'l Tr. Co., No. 3:16-CV-133, 2017 WL 1354098, at *4 (S.D. Tex. Apr. 13, 2017) (holding that trustee was the real party to the controversy where plaintiff sued the trustee and where the trust agreement gave the trustee full title to the trust assets and the power to sue and be sued); Rodriguez v. Deutsche Bank Nat'l Tr. Co., No. CV H-16-1597, 2017 WL 371141, at *2 (S.D. Tex. Jan. 26, 2017) (holding that the trustee was the real party to the controversy where the trustee had legal title and investment control and certificateholders had limited veto power).

         Here, using the jurisdictional analysis under Navarro and Bynane, there are factors both for and against each party's position. On one hand, the LSF9 Trust Agreement grants significant powers to USBTNA as trustee. Among other things, the agreement gives USBTNA the “power and authority to conduct the business of the [trust], make and execute contracts and other instruments on behalf of the [trust], and sue and be sued on behalf of the [trust].” (LSF9 Trust Agreement, Dkt. 34-2, § 2.01).[5] USBTNA is empowered to execute certificates, receive and dispose of loans, assign or convey trust assets, and manage and distribute trust income. (Id. § 2.03). On the other hand, legal title is vested in the trust, not in USBTNA as trustee. (Id. § 2.08). Additionally, an ownership-interest majority of certificateholders may take “any action or direction” in writing, which the trustee must then implement (subject to certain limitations).[6] (Id. §§ 4.03, 6.03).

         All things considered, the Court finds that USBTNA is a real party to the controversy such that its citizenship determines diversity jurisdiction under Navarro. Although USBTNA lacks legal title-unlike the Navarro trustees-USBTNA both “manage[s] the assets [and] control[s] the litigation” like the Navarro trustees. Navarro, 446 U.S. at 465. USBTNA has broad management powers that can be overcome by a certificateholders only in circumscribed instances. And, significantly, Plaintiff sued USBTNA in its capacity as trustee. See Americold Realty Tr. v. Conagra Foods, Inc., 136 S.Ct. at 1016 (“[W]hen a trustee . . . is sued in her own name, her citizenship is all that matters for diversity purposes.”). The Court is thus satisfied that USBTNA possesses sufficiently “real and substantial” control that it is a real party to the controversy. Navarro, 446 U.S. at 465. Accordingly, Plaintiff is diverse from USBTNA. The Court therefore has subject matter over this action because Plaintiff and USBTNA are the only two parties to this action, as clarified in the next section.

         B. The Substitute Trustees' and MWZM's Citizenship

         Plaintiff's second argument for remand[7] is that the Court lacks subject matter over this action because the Substitute Trustees and MZWM are Texas residents. (Dkt. 14, ¶ 14). USBTNA responds that the Court has subject matter jurisdiction because the Substitute Trustees and MZWM were improperly joined. (Dkt. 34, ¶ 1 n.2; Dkt. 1, ¶¶ 8-23). As it happens, subsequent developments have rendered the parties' disagreement on this point moot.

         Plaintiff filed his state-court petition on April 3, 2017, (Dkt. 1-1, at 5), USBTNA removed to this Court on April 6, (Dkt. 1), and Plaintiff filed his Amended Complaint on July 26, 2017, (Dkt.14). Plaintiff never served the Substitute Trustees or MWZM with either his state-court petition or his federal complaint, and the Court eventually ordered Plaintiff to show cause as to why he had neglected to timely serve those parties. (Dkt. 35). Rather than respond to the Court's order, Plaintiff filed a voluntary dismissal signed by USBTNA in which he dismissed his claims against the Substitute Trustees and MWMZ without prejudice under Federal Rule of Civil Procedure 41(a)(1)(A)(ii). (Dkt. 39). Accordingly, neither MWMZ nor the Substitute Trustees are currently parties to this action, [8] leaving only Plaintiff (a Texas resident) and USBTNA (a Delaware resident). Thus, the Court currently ...


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