U.S. Bank Nat'l Ass'n v. Nesbitt Bellevue Prop. LLC

• Decision Date: 05 June 2012
• Docket Number: No. 12 Civ. 423(JGK).,12 Civ. 423(JGK).
• Citation: 82 Fed.R.Serv.3d 654,859 F.Supp.2d 602
• Parties: U.S. BANK NATIONAL ASSOCIATION, Plaintiff, v. NESBITT BELLEVUE PROPERTY LLC, et al., Defendants.
• Court: U.S. District Court — Southern District of New York

859 F.Supp.2d 602

82 Fed.R.Serv.3d 654

U.S. BANK NATIONAL ASSOCIATION, Plaintiff,

v.NESBITT BELLEVUE PROPERTY LLC, et al., Defendants.

No. 12 Civ. 423(JGK).

United States District Court, S.D. New York.

May 7, 2012.

Opinion Denying Reconsideration June 5, 2012.

Keith Michael Brandofino, Eric J. Berardi, Tamara Anne Daniels, Kilpatrick Townsend & Stockton LLP, New York, NY, for Plaintiff.

John Kolsin Crossman, Frank Christian Welzer, Zukerman Gore, Brandeis & Crossman, LLP, New York, NY, for Defendants.

OPINION AND ORDER

JOHN G. KOELTL, District Judge.

This case involves the plaintiff's attempt to appoint a receiver for the defendants' properties because of the defendants' default on loans for which the properties were collateral. U.S. National Bank (“U.S. Bank,” the “plaintiff,” or the “Trustee”) is the Trustee, pursuant to a March 2006 Pooling and Servicing Agreement (the “PSA”) of various loans, including loans made to the defendants. The defendants are limited liability companies which own and operate, under the Embassy Suites franchise, hotels that are collateral for the defendants' loans. In January, 2012, the Trustee filed by Order to Show Cause a motion for the appointment of a temporary receiver for the defendants' properties. The defendants now move to dismiss this case for lack of subject matter jurisdiction pursuant to Rule 12(b)(1) of the Federal Rules of Civil Procedure.

I.

The facts relevant to this motion are undisputed unless otherwise noted.

U.S. Bank has alleged that this Court has subject matter jurisdiction pursuant to 28 U.S.C. § 1332 based on diversity of citizenship. (Compl. ¶ 12.) There is no dispute that the amount in controversy is greater than $75,000. The issue is whether there is complete diversity of the parties.

U.S. Bank asserts, and the defendants do not contest, that it is a national banking association with its main office in the state of Ohio. (Compl. ¶ 1.) U.S. Bank is therefore a citizen of Ohio. See Wachovia Bank v. Schmidt, 546 U.S. 303, 318, 126 S.Ct. 941, 163 L.Ed.2d 797 (2006). U.S. Bank also asserts, and the defendants do not contest, that the defendants are limited liability companies, and that neither the defendants' members, nor the members or partners of the defendants' corporate parents, are citizens of Ohio. (Compl. ¶¶ 4–11.)

In this case, the plaintiff is styled as “U.S. Bank National Association, As Trustee, As Successor–In–Interest To Bank Of America, N.A., As Trustee For The Registered Holders Of GS Mortgage Securities Corporation II, Commercial Mortgage PassThrough Certificates, Series 2006–GG6, acting by an through Torchlight Loan Services, LLC as Special Servicer under the Pooling and Servicing Agreement dated as of March 1, 2006.” (Compl.; see also Compl. ¶ 3 (“U.S. Bank, not individually, but solely in its capacity as ... Trustee under the PSA, acting by and through the Special Servicer, brings this action as Plaintiff ....”).) Torchlight Loan Services, LLC, (“Torchlight,” or the “Special Servicer”) is a limited liability company that is incorporated in the state of Delaware. Under the PSA, the Special Servicer “shall, for the benefit of the Certificateholders, direct, manage, prosecute and/or defend any and all claims and litigation relating to ... the enforcement of the obligations of each Mortgagor under the ... Loan Documents ....” (Crossman Repl. Decl. Ex. E (“March 1, 2006 PSA”), at § 3.12(d).) There is no dispute that, if Torchlight were considered a party for the purposes of diversity of citizenship, there would not be complete diversity of citizenship in this case, and thus the Court would lack subject matter jurisdiction.

The issue is whether Torchlight's citizenship must be considered for the purpose of assessing this Court's diversity jurisdiction.

II.

There are two separate, though related, inquiries at issue here. The first is whether U.S. Bank is a real party in interest in this case for the purposes of Rule 17 of the Federal Rules of Civil Procedure, which provides that “[a]n action must be prosecuted in the name of the real party in interest.” Fed.R.Civ.P. 17(a). “This means that an action must be brought by the person who, according to the governing substantive law, is entitled to enforce the right.” Oscar Gruss & Son, Inc. v. Hollander, 337 F.3d 186, 193 (2d Cir.2003). Rule 17(a) explicitly includes a “trustee of an express trust” as an example of a person or entity that can sue on its own without joining the person for whose benefit the action is brought. SeeFed.R.Civ.P. 17(a)(1)(E). The defendants assert that U.S. Bank is not the real party in interest in this case, because Torchlight must prosecute this action under the PSA.¹ However, this argument fails, because the PSA does not convey to Torchlight the exclusive power over claims such as the one asserted here. See LaSalle Bank National Ass'n v. Nomura Asset Capital Corp., 180 F.Supp.2d 465, 470 (S.D.N.Y.2001) (“Defendants argue that it is “clear from the express terms of the [PSA] that it is the Special Servicer, Lend Lease—and not the nominal trustee [LaSalle]—that has the power to manage, dispose of, and maximize recovery of the loan at issue, including through litigation,” and, therefore, Lend Lease, not LaSalle, is the real party in interest. A review of the PSA, however, does not support this contention.”).

If a trustee possesses “customary powers to hold, manage, and dispose of assets,” then that trustee is a real party in interest. Navarro Sav. Ass'n v. Lee, 446 U.S. 458, 464, 100 S.Ct. 1779, 64 L.Ed.2d 425 (1980). Whether the trustee possesses such powers is a question that is resolved based on the underlying trust document. See, e.g., LaSalle Bank Nat. Ass'n v. Lehman Bros. Holdings, Inc., 237 F.Supp.2d 618, 632 (D.Md.2002) (interpreting PSA under New York law). In this case the trustee has those customary powers under the PSA. Compare Nomura, 180 F.Supp.2d at 470 (holding that the Trustee had such customary powers when “[s]ection 2.01 of the PSA state[d] that ASC ‘does hereby sell, transfer, assign, set over and otherwise convey to the Trustee [LaSalle] ... all the right, title, and interest’ that ASC then held in the mortgages.”) with March 1, 2006 PSA, at § 2.01(a) (“Depositor.... does hereby ... assign, sell, transfer, set over, and otherwise convey to the Trustee ... all the right, title and interest of the Depositor” in the mortgage loans covered by the PSA and various related rights). The issue is whether the Trustee is entitled to enforce the right to a receiver under the PSA.

Courts in this Circuit have held that PSAs containing language virtually identical to the PSA at issue here allowed the trustees in those cases to bring suit in their own right, consistent with Rule 17, in the event of default. Compare Wells Fargo Bank, N.A., Trustee v. Konover, No. 05 Civ.1924, 2009 WL 2710229, at *3 (D.Conn. Aug. 21, 2009) (“[T] he Wells Fargo PSA provides the Trustee with power to take legal action the event of default. Specifically, the Wells Fargo PSA provides that, in the event of a default, the Trustee may ‘take such action to enforce such payment or performance, including the institution and prosecution of appropriate legal proceedings.’ ”); and Nomura, 180 F.Supp.2d at 471 (citing PSA that provided that in the event of a default the trustee may “take such action as may be appropriate to enforce such payment performance, including the institution and prosecution of appropriate proceedings”); with March 1, 2006 PSA at § 3.07(c) (“[I]f any default occurs in the making of a payment due under any Permitted Investment ... the Trustee may ... take such action as may be appropriate to enforce such payment or performance, including the institution and prosecution of appropriate proceedings.”). They have so held despite nearly identical language conveying “vast powers” to the special servicer through the terms of the PSA and through separate power of attorney agreements. Konover, 2009 WL 2710229, at *4;see Nomura, 180 F.Supp.2d at 471 (rejecting the assertion that the Special Servicer was the real party in interest because it was “specifically granted power by the PSA to manage and direct litigation intended to maximize recovery of loans that have defaulted” and concluding that “the mere fact that the PSA assigns certain duties to Lend Lease in connection with maximizing recovery of defaulted loans does not affect the basic premise, announced in Navarro, that a trustee of an express trust is the real party in interest when suing on behalf of that trust”); see also Lehman, 237 F.Supp.2d at 633 (“Merely because the PSA in this case delegates to [the special servicer] the right to institute a suit in its capacity as Special Servicer does not affect the basic premise that the trustee of an express trust is the real party in interest when suing on behalf of the trust.”). The terms of the PSA here are, as highlighted above, essentially identical to those in Konover and Nomura. U.S. Bank could bring this suit in its own right, as a real party in interest under Rule 17, notwithstanding the role accorded to Torchlight by the PSA, which hypothetically, would allow Torchlight to be a proper participant in the action.² The defendants' argument that Torchlight is a necessary party because U.S. Bank is not a real party in interest therefore must fail.

III.

The second issue is whether, notwithstanding the fact that U.S. Bank is a real party in interest for the purposes of Rule 17, Torchlight's citizenship should be considered for diversity purposes.³

The Court of Appeals for the Second Circuit has explained that “although there exists a ‘rough symmetry’ between the ‘real party in interest’ standard of Rule 17(a) and the rule that diversity jurisdiction depends upon the citizenship of real parties to the controversy ... the two rules serve different purposes and need not produce identical outcomes in all cases.” Oscar Gruss, 337 F.3d at 193 (quoting Navarro, 446 U.S. at...