Thursday, August 27, 2020

The Citizenship, For Purposes of Diversity Jurisdiction, of a Securitization Trust

The Citizenship, For Purposes of Diversity Jurisdiction, of a Securitization Trust

       In a recent decision from Texas, it was held that, where the plaintiff brought suit against Deutsche Bank in its capacity as trustee for a securitization trust and specifically a series thereof, it would be the citizenship of the trustee, and not of all of the trust’s participants/beneficial owners, that would control for purposes of diversity jurisdiction.  Dorman v. PHH Mortgage Corporation and Deutsche Bank National Trust Company, as Trustee for Securitized Asset Backed Receivables LLC Trust 2007-NC1, Mortgage Pass-Through Certificates, Series 2007-NC1 and Deutsche Bank Securities Inc., 2020 WL 4904266 (N.D. Tex., 2020).

      Dorman brought her suit in state court alleging a variety of claims relating, it may be inferred, to a foreclosure on her house. PHH Mortgage Corporation, the loan servicer, removed the action to federal court. This decision came in response to Dorman’s efforts to remand the case back to state court, the basis for the remand to be the failure to demonstrate diversity of citizenship. Essentially, Dorman wanted to argue that the citizenship of every participant in the securitization trust should be considered, she making that argument on the basis of Americold Realty Trust v. ConAgra Foods, Inc., 136 S. Ct. 1012 (2016). HERE IS A LINK TO MY REVIEW of that decision. In contrast, Deutsche Bank would argue that this case be decided under the principles of Navarro Savings Association v. Lee, 446, U.S. 458 (1980). In the Americold Realty decision, the US Supreme Court held that, for purposes of diversity jurisdiction, a business/statutory trust, sued as the trust, would be deemed to have the citizenship of every one of its beneficial owners. The Navarro Savings decision, in contrast, held that when the trustees of the trust are sued as the trustees, it is the citizenship of the trustees, and not the beneficiaries of the trust, that is relevant for purposes of assessing whether or not diversity jurisdiction is present.

      In this decision, in that Deutsche Bank had been sued in its capacity as the trustee, and suit had not been brought directly against the trust, the rule of Navarro Savings would apply, and only the citizenship of the trust’s trustees would be relevant.

      As there was diversity between the plaintiff and the trustees, and the citizenship of the other defendants was likewise diverse from that of the plaintiff, the suit has been allowed to proceed in federal court.

No comments:

Post a Comment