Yueh–Lan Wang v. New Mighty U.S. Trust

• Decision Date: 09 December 2016
• Docket Number: No. 12-7038,12-7038
• Citation: 843 F.3d 487
• Parties: Yueh–Lan Wang, by and through her attorney-in-fact, Winston Wen–Young Wong, Appellant v. New Mighty U.S. Trust, et al., Appellees
• Court: U.S. Court of Appeals — District of Columbia Circuit

843 F.3d 487

Yueh–Lan Wang, by and through her attorney-in-fact, Winston Wen–Young Wong, Appellant

v.New Mighty U.S. Trust, et al., Appellees

No. 12-7038

United States Court of Appeals, District of Columbia Circuit.

Argued September 21, 2016

Decided December 9, 2016

Mark W. Stoutenburg argued the cause for the appellant. Daniel S. Weinberger, New York, NY, was with him on brief. Steven M. Chasin, Washington, DC, entered an appearance.

Clifford M. Sloan argued the cause for the appellees. David B. Leland, Washington, DC, John Gardiner and Andrew Muscato, New York, NY, were with him on brief. David E. Carney, Washington, DC, entered an appearance.

Before: Henderson, Kavanaugh and Millett, Circuit Judges.

Karen LeCraft Henderson, Circuit Judge:

This case presents the question of how to determine the citizenship of a trust for diversity subject-matter jurisdiction pursuant to 28 U.S.C. § 1332(a). In light of the United States Supreme Court's recent decision in Americold Realty Trust v. ConAgra Foods, Inc. , 577 U.S. ––––, 136 S.Ct. 1012, 194 L.Ed.2d 71 (2016), we conclude that a so-called "traditional trust" carries the citizenship of its trustees. We accordingly reverse the district court's Rule 12(b)(1) dismissal and remand for further proceedings. Fed. R. Civ. P. 12(b)(1). We also grant the plaintiff's pending motion to substitute as hereinbelow discussed.

I. BACKGROUND

The facts giving rise to this lawsuit began over eighty years ago and thousands of miles away.¹ In 1935, Yueh–Lan Wang (Yueh–Lan)—in whose name this action was brought—married Yung–Ching Wang (Y.C.).² Perhaps presaging the advice given Dustin Hoffman's eponymous character in the 1967 movie The Graduate ,³ Y.C. went into plastics, founding the Formosa Plastics Group in 1954. He achieved tremendous success and, by the time of his death in 2008, Y.C. was ranked by Forbes magazine as the 178th wealthiest person in the world with an estimated net worth of up to $6.8 billion. Although Y.C. remained married to Yueh–Lan over the course of his life, at the same time he had a number of children with two other women, Wang Yang Chiao⁴ and P.C. Lee. Yueh–Lan helped to rear at least one of those children, Winston Wen–Young Wong (Winston), whose biological mother was Wang Yang Chiao. According to her will, Yueh–Lan considered Winston her son.

Y.C. died on October 15, 2008. Three years earlier, however, allegedly in an effort to reduce Yueh–Lan's share of the marital estate, Y.C. made various distributions and stock transfers to, inter alia , the New Mighty U.S. Trust (New Mighty), a trust formed under the laws of the District of Columbia to hold certain of Y.C.'s assets.⁵ In an effort to account for and recover Yueh–Lan's share of the marital estate, Winston—a citizen of Taiwan and allegedly acting as Yueh–Lan's attorney-in-fact—brought suit in October 2010 against New Mighty, along with its trustee, Clearbridge, LLC, and the New Mighty Foundation, one of New Mighty's beneficiaries. Up to now, the case has had little to do with the legitimacy of Y.C.'s pre–2008 distributions.

In July 2011, the defendants moved to dismiss the complaint on a variety of grounds, including lack of diversity. The district court concluded that a traditional trust (like New Mighty) is an artificial entity that "assumes the citizenship of all of its ‘members' for purposes of diversity jurisdiction." Wang ex rel. Wong v. New Mighty U.S. Tr. , 841 F.Supp.2d 198, 205 (D.D.C. 2012). Reasoning that New Mighty's "members" must include its beneficiaries, the court held that, because the amended complaint lacked allegations sufficient to establish the citizenship of at least some beneficiaries, subject-matter jurisdiction could not be determined. Id. at 206–07. Accordingly, the court instructed the defendants to produce a list of all beneficiaries and their citizenship. Id. at 208. The list revealed that New Mighty's beneficiaries included several entities that were citizens of the British Virgin Islands.

As a result, complete diversity did not exist: defendant Clearbridge was a citizen of Virginia and the District of Columbia; defendant New Mighty Foundation was a citizen of Delaware and the District of Columbia and defendant New Mighty was then deemed a citizen of Delaware, the District of Columbia and the British Virgin Islands. With both an alien plaintiff and at least one alien defendant, the district court found diversity lacking. Winston sought reconsideration, arguing that the defendants had to show that the beneficiaries in fact received a distribution to qualify as beneficiaries under the trust and, therefore, their citizenship was irrelevant without such showing. In April 2012, the district court denied reconsideration. This appeal followed.

Shortly after the notice of appeal was filed, however, Yueh–Lan died. The appeal was held in abeyance and, consistent with this Court's instructions, Winston filed a series of reports on the status of legal proceedings underway in Taiwan to appoint an executor of Yueh–Lan's will. Eventually, three persons—Chen–Teh Shu, Dong–Xung Dai and Robert Shi—were designated joint executors. Winston and the executors moved to substitute the executors as Yueh–Lan's personal representative pursuant to Federal Rule of Appellate Procedure 43(a)(1). The defendants opposed the motion, arguing that Winston was not the proper party to have initiated the lawsuit in the first place and that it should therefore be dismissed and the substitution motion denied. Both the substitution and dismissal motions were referred to this merits panel for disposition.⁶ The questions before us, then, are whether the district court lacked subject-matter jurisdiction and whether the pending motion to substitute should be granted.

II. ANALYSIS

A. SUBJECT–MATTER JURISDICTION

"The judicial Power" of the United States "extend[s] ... to Controversies ... between a State, or the Citizens thereof, and foreign ... Citizens...." U.S. Const. art. III, § 2, cl. 1. Although the Congress has granted the district court jurisdiction of a civil action in which "the matter in controversy exceeds ... $75,000 ... and is between ... citizens of a State and citizens or subjects of a foreign state," 28 U.S.C. § 1332(a) (2006), that provision—which requires "complete" diversity—does not reach disputes between aliens, see Saadeh v. Farouki , 107 F.3d 52, 54–55, 61 (D.C. Cir. 1997). This lawsuit was originally brought by Winston on behalf of Yueh–Lan, a Taiwanese. Whether diversity jurisdiction exists depends, first, on correctly identifying the defendants and, then, determining their citizenship.

Supreme Court Precedent

In determining a trust's citizenship, we were guided pre-Americold by the Supreme Court's decisions in Navarro Savings Association v. Lee , 446 U.S. 458, 100 S.Ct. 1779, 64 L.Ed.2d 425 (1980), and Carden v. Arkoma Associates , 494 U.S. 185, 110 S.Ct. 1015, 108 L.Ed.2d 157 (1990). Although neither case addressed the issue directly, both informed the Court's analysis in Americold and here, too, they provide a useful point of departure.

In Navarro the question was "whether the trustees of a business trust may invoke the diversity jurisdiction of the federal courts on the basis of their own citizenship, rather than that of the trust's beneficial shareholders." 446 U.S. at 458, 100 S.Ct. 1779. In that case, the plaintiffs—eight individual trustees of Fidelity Mortgage Investors (Fidelity), "a business trust organized under Massachusetts law"—had lent $850,000 to a Texas firm. Id. at 459, 100 S.Ct. 1779. In return, the Texas firm provided a promissory note payable to the plaintiffs as trustees. Id. The note was, in turn, partially secured by a commitment letter under which Navarro Savings Association (Navarro)—the defendant—agreed to lend the Texas firm $850,000 to cover the latter's obligation. Id. When the plaintiff trustees asked Navarro to make the loan, Navarro refused. Id. They brought suit in federal district court, invoking its diversity jurisdiction. Id. The district court, however, found diversity lacking. Id. at 460, 100 S.Ct. 1779. In its view, the Massachusetts business trust was a citizen of every state in which its shareholders resided and, although defendant Navarro was a citizen of Texas and all eight plaintiff trustees were citizens of other states, some of Fidelity's shareholders were citizens of Texas and therefore defeated diversity. Id. On appeal, the Fifth Circuit reversed, reasoning that the trustees—and not Fidelity's beneficial shareholders—were "charged with the power to sue and be sued on behalf of the trust, ... the persons in actual control of the trust and the real parties in interest." Lee v. Navarro Savs. Ass'n , 597 F.2d 421, 425 (5th Cir. 1979). The Supreme Court affirmed. Navarro , 446 U.S. at 460, 100 S.Ct. 1779. As the Court explained, the plaintiff trustees were the "real parties to the controversy," id. at 461, 465, 100 S.Ct. 1779 ; "[t]hey ha[d] legal title; they manage[d] the assets; they control[led] the litigation[,]" id. at 465, 100 S.Ct. 1779.

Navarro contended that Fidelity's "business trust" status "mask[ed] an unincorporated association of individuals who make joint real estate investments," id. at 461, 100 S.Ct. 1779, and, therefore, as an unincorporated association made up of a "mere collection[ ] of individuals," id. citizenship of those individuals "determines the diversity jurisdiction of a federal court," id. Although the Court concluded that it "need not reject the argument that Fidelity share[d] some attributes of an association," it determined that the litigation "involve[d] neither an association nor a corporation" but instead "an express trust." Id. at 462, 100 S.Ct. 1779.

Despite its relatively plain holding that Fidelity's trustees—not its shareholders—were the real parties to the controversy, Navarro could arguably be read as also laying down a rule to determine the non-party trust 's citizenship—as was subsequently attempted in Carden . In Carden ,...