Opinion
CASE NO. 10-20636-CIV-ALTONAGA/Brown.
October 22, 2010
ORDER
THIS CAUSE came before the Court on Defendant, Philips South Beach, LLC's ("Philips['s]") Renewed Motion to Dismiss Due to Lack of Subject Matter Jurisdiction (the "Motion") [ECF No. 54], filed August 5, 2010. The Court has carefully reviewed the Motion, the parties' written submissions, and applicable law.
I. BACKGROUND
The factual background of this case is set out in the Court's July 2, 2010 Order [ECF No. 41] and will not be restated here. Additional facts are stated as they may relate to the Motion presently before the Court.
Philips has filed a second motion to dismiss the claims asserted by Plaintiff, JPMCC 2005-CIBC13 Collins Lodging, LLC ("Collins"). Philips's Motion to Dismiss Due to Lack of Subject Matter Jurisdiction (the "First Motion") [ECF No. 35], filed June 10, 2010, was denied because Collins's Amended Complaint [ECF No. 32] adequately alleged the citizenship of the parties and Philips failed to produce evidence necessary to show a lack of diversity. ( See id. 6). Having completed jurisdictional discovery, Philips filed the present Motion.
This case originates from the package and transfer of several interests in a $126,500,000 loan ("Loan") issued by CIBC, a holding corporation, to Philips in an effort to refinance a Miami Beach property known as the Shore Club Hotel. ( See July 2, 2010 Order 1-3). Collins's Amended Complaint alleges diversity exists because Collins's sole member is Wells Fargo Bank, National Association ("Wells Fargo"), a nationally-chartered bank and South Dakota citizen, and Philips is a citizen of Florida, Delaware, and New York. ( See Am. Compl. ¶¶ 3, 6).
In the Motion, Philips contends Wells Fargo, as trustee for the registered holders of JP Morgan Chase Commercial Mortgage Securities Corp., Commercial Pass-Through Certificates, Series 2005-CIBC13 ("JPMCC Certificates) — who formed a REMIC trust — is not the proper party on which to judge the citizenship of a trust for diversity purposes. ( See Mot. 7). Philips asserts Collins's members are the JPMCC Certificate holders. ( See id. 7-8). Because several of the JPMCC Certificate holders are citizens of Delaware and New York, Philips maintains complete diversity of the parties is absent, and the Amended Complaint should be dismissed for lack of subject matter jurisdiction. ( See id. 10).
A real estate mortgage investment conduit ("REMIC") is an entity formed as a trust for federal income tax purposes. See 26 U.S.C. § 860(d).
II. LEGAL STANDARD
"Federal courts are courts of limited jurisdiction." Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377 (1994). It is presumed that a federal court lacks jurisdiction in a particular case until the plaintiff demonstrates the court has jurisdiction over the subject matter. See id. (citing Turner v. Bank of No. Am., 4 U.S. 8, 11 (1799); McNutt v. Gen. Motors Accept. Corp. of Ind., 298 U.S. 178, 182 (1936) ("It is incumbent upon the plaintiff properly to allege the jurisdictional facts. . . .")). A district court may inquire into the basis of its subject matter jurisdiction at any stage of the proceedings. See 13 Charles A. Wright, Arthur R. Miller, Edward H. Cooper Richard D. Freer, FEDERAL PRACTICE PROCEDURE § 3522 (3d ed. 2008).Attacks on subject matter jurisdiction under Rule 12(b)(1) of the Federal Rules of Civil Procedure may be either facial or factual. See Lawrence v. Dunbar, 919 F.2d 1525, 1528-29 (11th Cir. 1990). Like a Rule 12(b)(6) motion, "[a] `facial attack' on the complaint requires the court merely to look and see if plaintiff has sufficiently alleged a basis of subject matter jurisdiction, and the allegations in the complaint are taken as true. . . ." Menchaca v. Chrysler Credit Corp., 613 F.2d 507, 511 (5th Cir. 1980) (citing Mortensen v. First Fed. Sav. Loan Ass'n, 549 F.2d 884, 891 (3d Cir. 1977)). Factual attacks differ because they "challenge[] the existence of subject matter jurisdiction in fact . . . and matters outside of the pleadings, such as testimony and affidavits, are considered." Id. If a defendant shows a lack of diversity by meeting its burden of production for a factual attack, then the plaintiff must respond with proof definitively evincing diversity exists. See OSI, Inc. v. United States, 285 F.3d 947, 951 (11th Cir. 2002). Factual attacks also differ from facial attacks because "no presumptive truthfulness attaches to plaintiff's allegations, and the existence of disputed material facts will not preclude the trial court from evaluating for itself the merits of jurisdictional claims." Mortensen, 549 F.2d at 891.
III. ANALYSIS
In its Amended Complaint, Collins sues Philips to foreclose a mortgage on a Miami Beach hotel alleging the basis for federal jurisdiction is diversity of citizenship. In order for federal diversity jurisdiction to exist, each defendant must be diverse from each plaintiff. See Univ. of S. Ala. v. Am. Tobacco Co., 168 F.3d 405, 412 (11th Cir. 1999) (citing Strawbridge v. Curtiss, 7 U.S. 267 (1806)). Philips's Motion asserts Collins was organized as a REMIC trust, and should be deemed — for diversity purposes — a citizen of each state in which it has at least one certificate holder. ( See Mot. 7-8). Because several of the JPMCC Certificate holders are from Delaware and New York, Philips maintains Collins's Amended Complaint should be dismissed because Collins is not diverse from Philips's Florida, Delaware, and New York-based LLC. ( See id. 10).
The Supreme Court has recognized "trustees of an express trust are entitled to bring diversity actions in their own names and upon the basis of their own citizenship." Navarro Sav. Ass'n v. Lee, 446 U.S. 458, 462 (1980) (internal citations omitted). A trustee is a real party to the controversy for purposes of diversity jurisdiction when the trustee possesses certain customary powers to hold, manage, and dispose of assets for the benefit of others. See id. at 464. By contrast, "unincorporated associations remain mere collections of individuals," and each individual's citizenship determines and potentially defeats the diversity jurisdiction of a federal court. Id. at 461; see also Great S. Fire Proof Hotel Co. v. Jones, 117 U.S. 449, 455-56 (1900) (holding citizenships of individual members of unincorporated partnership are used in assessing diversity). Importantly, the mere designation of an entity as a trust rather than an unincorporated association is not controlling for purposes of determining diversity of citizenship. See Xaros v. U.S. Fid. Guar. Co., 820 F.2d 1176, 1181-82 (11th Cir. 1987) (finding entities describing themselves as trust funds and seeking to predicate diversity jurisdiction on the citizenship of the putative trustee failed to allege facts negating their existence as voluntary unincorporated associations).
Collins relies on several cases where courts considered the diversity question in the specific context of REMIC trusts and held the citizenship of the trustee — and not that of the certificate holders — was controlling for purposes of diversity jurisdiction. ( See Resp. 11-18 [ECF No. 58]). The cases cited by Collins rely mainly on Navarro, 446 U.S. at 458, for the proposition that for diversity purposes, the citizenship of a business trust is determined solely by the citizenship of its trustee. ( See id. (citing Wells Fargo Bank, N.A. v. Konover, No. 3:05 CV 1924 (CFD), 2009 WL 2710229, at *2-3 (D. Conn. Aug. 21, 2009); LaSalle Bank Nat'l Ass'n v. Lehman Bros. Holdings, Inc., 237 F. Supp. 2d 618, 631-34 (D. Md. 2002) (discussing real party in interest and trustee's powers of enforcement); LaSalle Bank Nat'l Ass'n v. Nomura Asset Capital Corp., 180 F. Supp. 2d 465, 470 (S.D.N.Y. 2001))). The Navarro Court held eight individual trustees of a business trust, who brought an action for breach of contract, could "invoke the diversity jurisdiction of the federal court on the basis of their own citizenship, rather than that of the trust's beneficial shareholders." 446 U.S. at 458. Collins argues Navarro and subsequent cases relying on its holding should persuade the Court to disregard the citizenship of the registered holders of the JPMCC Certificates in determining jurisdiction. ( See Resp. 11-14).
In light of the Supreme Court's ruling in C.T. Carden v. Arkoma Associates, 494 U.S. 185 (1990), which was decided ten years after Navarro, the undersigned must disagree. Carden explicitly holds the citizenship of an artificial entity other than a corporation is determined by the citizenship of "`every member'" of the entity. Carden, 494 U.S. at 195 (quoting id. at 199 (J. O'Connor, dissenting)). In Carden, Justice Scalia adamantly distinguished the holding in Navarro as follows:
[ Navarro] did not involve the question whether a party that is an artificial entity other than a corporation can be considered a "citizen" of a State, but the quite separate question whether parties that were undoubted "citizens" (viz., natural persons) were the real parties to the controversy. The plaintiffs in Navarro were eight individual trustees of a Massachusetts business trust, suing in their own names. The defendant, Navarro Savings Association, disputed the existence of complete diversity, claiming that the trust beneficiaries rather than the trustees were the real parties to the controversy, and that the citizenship of the former and not the latter should therefore control. In the course of rejecting this claim, we did indeed discuss the characteristics of a Massachusetts business trust — not at all, however, for the purpose of determining whether the trust had attributes making it a "citizen," but only for the purpose of establishing that the respondents were "active trustees whose control over the assets held in their names is real and substantial," thereby bringing them under the rule, "more than 150 years" old, which permits such trustees "to sue in their own right, without regard to the citizenship of the trust beneficiaries."Id. at 191 (quoting Navarro, 446 U.S. at 465-66).
Here, Wells Fargo, as trustee for the registered holders of the JPMCC Certificates, is not attempting to sue in its own right. Rather, Collins — "a special purpose entity" — is suing Philips in its own name. (Am. Compl. ¶ 23). Because Collins is an "artificial entity other than a corporation," its citizenship for purposes of determining diversity jurisdiction must depend on the citizenship of all the members. Carden, 494 U.S. at 191; see also Emerald Investors Trust v. Guant Parsippany Partners, 492 F.3d 192, 200-1 (3d Cir. 2007) (citing Carden and noting when an artificial entity sues in its own name, diversity jurisdiction depends on the citizenship of all its members). As it is undisputed there are registered holders of JPMCC Certificates who share New York and Delaware citizenship with Philips, the complete diversity required for federal submect matter jurisdiction does not exist. See Riley v. Merrill Lynch, Pierce, Fenner Smith, Inc., 292 F.3d 1334, 1339 (11th Cir. 2002) (noting "the citizenship of trust fund members is determinative of the existence of diversity of citizenship" and treating a business trust "as a citizen of each state in which one of its shareholders is a citizen") (internal quotations and citations omitted); accord 13F Charles Alan Wright, Arthur R. Miller Edward H. Cooper, FEDERAL PRACTICE PROCEDURE § 3630.1 (3d ed. 2009) ("The majority view . . . appears more consistent with the general rule, re-articulated in Carden, that the citizenship of each member of an unincorporated association . . . must be considered in determining whether diversity of citizenship exists.").
In declining to take jurisdiction in this case, the Court cannot be persuaded by Philips's contention that because REMIC trusts consist of tens of thousands of certificate holders, taking into consideration the citizenship of the individual certificate holders in determining the diversity of the parties "would divest federal courts of jurisdiction over trusts whose existence is authorized solely by operation of federal tax law" and "rarely makes for survivable jurisprudence." (Resp. 10). The rule in Carden is "technical, precedent-bound, and unresponsive to policy considerations raised by the changing realities of business organization." Carden, 494 U.S. at 196; cf. Underwriters at Lloyd's, London v. Osting-Schwinn, No. 08-15809, 2010 WL 3056606, at *9 (11th Cir. Aug. 5, 2010) (noting the rule in Carden "does not admit of exceptions based on convenience or practicality"). Collins's assertion REMIC trusts are creatures of federal income tax law and warrant a distinct rule for establishing diversity jurisdiction does not compel a different outcome where the nature of Collins's claim is to foreclose a mortgage on real property — a claim unaffected by the operation of federal tax law. Thus, whether REMIC trusts ought to be transformed to the status of corporations for diversity purposes is a matter of legislative concern and beyond the ambit of judicial determination. See Carden, 494 U.S. at 197.
IV. CONCLUSION
Consistent with the foregoing analysis, it isORDERED AND ADJUDGED that
1. Defendant, Philips South Beach, LLC's Motion to Dismiss [ECF No. 54] is GRANTED.
2. All pending motions are DENIED as moot.
3. This matter is DISMISSED and the Clerk is directed to CLOSE the case.
DONE AND ORDERED in Chambers at Miami, Florida, this 22nd day of October, 2010.