Monday, November 28, 2016

Allegations of Diversity Substantively Lacking Even as Question of Citizenship of Statutory Trust is Raised

Allegations of Diversity Substantively Lacking
Even as Question of Citizenship of Statutory Trust is Raised


In a recent decision from New York, a plaintiff bank’s complaint was dismissed for failure to adequately respond to repeated admonitions from the court as to the requirements for setting forth the basis of diversity jurisdiction. As the plaintiff, it was the obligation of US Bank to detail the citizenship of the various parties to the dispute.  It failed to do so both as to itself and as to Rome Savings Bank, the holder of a subordinate lien on the property for which foreclosure was sought.  In addition, the court raised the question of whether the bank, as the trustee, was the correct party in interest or, weather, statutory trust for which it served as the trustee should be treated as the real party in interest. U.S. Bank Trust, N.A., As Trustee for LSF Master Participation Trust v. Dupre, No. 6:15-CV-0558 (LEK/TWD), 2016 WL 5107123 (N.D.N.Y. Sept. 20, 2016).
      As to Rome Savings Bank, US Bank was called to task for not pleading its jurisdiction of organization or its form of organization.  As to the last point, it plead that “Rome Savings Bank is a corporation or other business entity.”, a statement characterized as saying “effectively nothing about how its citizenship is properly determined.”

      Even more surprising was that US Bank was apparently unable to correctly plead its own citizenship.  A statute applicable to national banks such as US Bank provides that they are citizens of the state in which is located the main office as set forth  in the articles of association filed with the Comptroller of the Currency.  US Bank plead the location of its “principal executive offices” and “principal place of business.”  
      Here, US Bank failed to provide its articles of association, and failed to state anywhere in its memorandum that Delaware is the state listed as the location of its main office in the articles of association.  Because US Bank failed to provide its articles of association or other comparable evidence of the bank’s main office, as it  was directed to do in the Court’s July Order, the Court finds that US Bank has not sufficiently established its citizenship for purposes of diversity jurisdiction. 2016 WL 5107123, *3.
   Even beyond U.S. Bank’s failure to properly establish its own citizenship, it has also failed to show that its citizenship alone may be counted when bringing suit on behalf of the LSF8 Master Participation Trust. In Americold Realty Trust v. Conagra Foods, Inc., 136 S. Ct. 1012 (2016), the Supreme Court addressed the diversity citizenship of a real estate investment trust (“REIT”) created under Maryland law. Noting that states “have applied the ‘trust’ label to a variety of unincorporated entities that have little in common with” traditional, gift-based trusts, the Court found that for business trusts that are separate legal entities and can sue or be sued in their own right, the citizenship of all the trust’s shareholders or beneficiaries is dispositive. Id. at 1016–17.

     The court raised the question of whether US Bank, on behalf of the LSF8 Master Participation Trust, could proceed in its own name, in which instance only its citizenship would have been at issue, or whether the citizenship of all of the participants in that trust would as well be at issue. Applying the Americold decision, even as it criticized counsel for not well addressing the jurisdictional question, the court wrote:
U.S. Bank responds to Americold by noting that, unlike the REIT at issue in that case, here U.S. Bank brought suit in its own name as trustee and was “authorized to act on behalf of” the trust under the trust instrument. Indeed, the Court in Americold left intact the rule that “when a trustee files a lawsuit in her name, her jurisdictional citizenship is the State to which she belongs—as is true of any natural person.” 136 S. Ct. at 1016 (citing Navarro Sav. Ass’n v. Lee, 446 U.S. 458, 465 (1980)). This rule, however, only applies when the trustees are the real parties in interest to the controversy, meaning, among other things, that they are “active trustees whose control over the assets held in their names is real and substantial.” Navarro, 446 U.S. at 462–66.
While the Court asked U.S. Bank to provide evidence on this point (namely, the trust instrument), it has utterly failed to do so. The trust agreement attached to the Second Memorandum was almost completely redacted, and the only visible portion remaining—cited by U.S. Bank as apparently showing its active control over the trust—states that U.S. Bank “shall have only such rights, powers and duties as are specifically and expressly required by this Agreement.” If anything, this provision seems to expressly reject the idea that U.S. Bank is an active trustee with real and substantial control over the trust’s assets (and thus that U.S. Bank is the real party in interest under Navarro). If the rest of the trust agreement shows differently, U.S. Bank has rendered this impossible to determine by filing an otherwise completely redacted version of this document.
Despite U.S. Bank’s argument, this Delaware statutory trust seems precisely like the type considered by the Supreme Court in Americold, and U.S. Bank has failed to demonstrate that it is a real party to the controversy that can proceed in its own right and without reference to the citizenship of the trust’s beneficiaries, cf. Del. Code Ann. tit. 12, § 3804(a) (“A statutory trust may sue or be sued [in its own name] ....”). For all of these reasons, this action must be dismissed for lack of subject matter jurisdiction.  2016 WL 5107123, *4.
      Clearly the Americold decision must be addressed anytime a party to the case brought under federal diversity jurisdiction involves a “trust.”

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