Branch Banking and Trust Company v. The Inn at Dauphin Island, L.L.C. et al

Filing 54

ORDER denying the 33 , 35 & 36 Motions to Dismiss the amended complaint. The defendants' motions to dismiss the original complaint, (Docs. 9, 11, 15, 21), whichwas superseded by the first amended complaint, are denied as moot. Signed by Chief Judge William H. Steele on 4/13/2011. (tgw)

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF ALABAMA
SOUTHERN DIVISION
BRANCH BANKING AND TRUST
COMPANY, etc.,
Plaintiff,
v.
THE INN AT DAUPHIN ISLAND,
L.L.C., etc., et al.,
Defendants.

)
)
)
)
)
) CIVIL ACTION 10-0498-WS-N
)
)
)
)
)
ORDER

This matter is before the Court on the motions of three defendants to dismiss the
first amended complaint on the sole ground that subject matter jurisdiction is lacking.
(Docs. 33, 35, 36). The parties have filed briefs and/or evidentiary materials in support
of their respective positions, (Docs. 9, 11, 19, 21, 22, 25-29, 37, 38, 41, 49), and the
motions are ripe for resolution.1
The plaintiff brought this action in federal court based on diversity of citizenship.
The first amended complaint alleges that the plaintiff is a North Carolina corporation
with its principal place of business also in North Carolina. (Doc. 31, ¶ 2). It alleges that
the entity defendant is a limited liability company and that its only members are the
individual defendants. (Id., ¶ 3). It also alleges that the individual defendants are all
citizens of Alabama, which renders the LLC likewise a citizen of Alabama. (Id., ¶¶ 4-6).2

1

The defendants’ motions to dismiss the original complaint, (Docs. 9, 11, 15, 21), which
was superseded by the first amended complaint, are denied as moot.
2

E.g., Rolling Greens MHP, L.P. v. Comcast SCH Holdings L.L.C., 374 F.3d 1020, 1022
(11th Cir. 2004).

[1]

This is a perfectly satisfactory pleading of complete diversity. Nevertheless, the
defendants gamely attempt to conjure a jurisdictional infirmity.
The first amended complaint alleges that the defendant Inn at Dauphin Island,
L.L.C. (“the Inn”) executed a series of promissory notes in favor of non-party Colonial
Bank, N.A. (“Colonial”), with the current, consolidated iteration of the Inn’s obligation
reflected in Exhibit 19. (Doc., 31, ¶¶ 8, 13-18, 20, 24). The individual defendants
executed unlimited guaranties in favor of Colonial and later executed acknowledgments
of same. (Id., ¶¶ 10-12, 23, 25). To further secure the loans, the Inn executed in favor of
Colonial a mortgage, a mortgage modification agreement, and an assignment of contracts,
leases, rents and profits. (Id., ¶¶ 9, 21, 22).
The plaintiff is alleged to be the “successor in interest to Colonial Bank, N.A. by
asset acquisition from the FDIC as receiver for Colonial Bank, N.A. and the owner and
holder of” the documents referenced above. (Doc. 31, ¶ 26).
The Inn allegedly defaulted under the note on or about November 14, 2009. (Doc.
31, ¶ 27). The plaintiff seeks recovery from the Inn under the note and from the
individual defendants on their guaranties. (Id. at 6-10). The amount in controversy
exceeds $2.5 million. (Id., ¶ 29).
The Inn, despite its sketchy briefing, takes the lead. It first complains that “[t]here
is no document submitted which reflects assignment of all of Colonial Bank’s interest [in
the note and other loan documents] to the Plaintiff.” (Doc. 9 at 1). It continues that, “for
aught that appears of record, Colonial Bank remains the holder of the subject
notes/mortgage, or maintains an interest therein,” and it concludes that, to the extent
Colonial retains an interest, it is a necessary party defeating complete diversity. (Id. at 12).
The threshold problem with the Inn’s position is that it does not actually implicate
subject matter jurisdiction. Even in the exceedingly unlikely event that Colonial
remained the holder of the relevant documents, that would not change the parties’
citizenship, it would simply prevent the plaintiff from successfully suing on those
[2]

documents. Such a circumstance might furnish grounds for a motion for summary
judgment or a motion to dismiss for failure to state a claim (could the Inn establish
Colonial’s status from the pleadings alone), but it would not defeat complete diversity.
Invoking archaic “necessary party” language does not change this. Rule 19(a)
describes persons “required to be joined if feasible,” and Rule 19(b) addresses how to
proceed if such a person “cannot be joined,” including “because of limitations on …
subject matter jurisdiction.” Fed. R. Civ. P. 19 advisory committee note 1966
amendment; accord Focus on the Family v. Pinellas Suncoast Transit Authority, 344
F.3d 1263, 1280 (11th Cir. 2003). Thus, even were Colonial a person required to be
joined if feasible, subject matter jurisdiction would still exist, and the only question
would be whether the case should continue in Colonial’s absence.
At any rate, the Inn has not even cited Rule 19, much less applied it. Because the
Inn bears “the initial burden of demonstrating that a missing party is necessary,” Hood ex
rel. Mississippi v. City of Memphis, 570 F.3d 625, 628 (5th Cir. 2009),3 its silence is fatal
to its position. At a minimum, the asserted claim of the absent party must be at least
“colorable,” Jonesfilm v. Liongate International, 299 F.3d 134, 140 (2nd Cir. 2002), and it
patently is not colorable that a bank placed in receivership and with its assets transferred
by the FDIC – as routinely occurs in such situations – nevertheless retains those assets.
At a factual level, the Inn is simply wrong to suggest there is no evidence that
Colonial’s former interest in the loan documents is now held by the plaintiff. There is in
the record an “Assignment of Security Instruments and Other Loan Documents” from the
FDIC to the plaintiff, which transfers to the plaintiff “all of Assignor’s rights, title and
interests in and to the promissory notes, loan documents and all other indebtedness
secured by the Security Instruments,” which are defined to include “all those certain
Mortgages, Security Deeds, Deed to Secure Debt, Deeds of Trust, Assignments of Rents
3

Accord American General Life & Accident Insurance Co. v. Wood, 429 F.3d 83, 92 (4th
Cir. 2005); Davis v. United States, 192 F.3d 951, 958 (10th Cir. 1999).

[3]

and Leases, … and all such other instruments and security agreements securing loans
owned by Colonial Bank held of record by Colonial Bank or any of its predecessors as of
August 14, 2009.” (Doc. 22, Exhibit A at 1). As is obvious from this description, this
transaction effected “the bulk assignment of Colonial Bank’s entire loan portfolio
existing as of August 14, 2009.” (Doc. 22, Justiss Affidavit, ¶ 4).
The Inn does not, cannot dispute this evidence. Instead, it suggests weakly that
the plaintiff must prove “that the subject promissory note was possessed by Colonial
Bank as of August 14, 2009” so as to be swept within the FDIC assignment. (Doc. 25 at
1-2). Of course, the Inn has no evidence that Colonial did not possess the note as of
August 14, 2009 and no reason to believe Colonial might not have possessed the note on
that date. And, as noted above, even if Colonial did not possess the loan instruments on
August 14, 2009, that would mean only that the plaintiff did not receive assignment of
them and that the FDIC or some unknown third party, rather than the plaintiff or
Colonial, has the right to sue on them. Such a state of affairs might defeat the plaintiff’s
right to recover, but it would not impact the existence of subject matter jurisdiction.
The same can be said of the Inn’s belated argument, raised for the first time in
reply, that the plaintiff must submit the original documents in order to show that it
“holds” or “possesses” them. (Doc. 25 at 3). The Inn says that, without such a showing,
Colonial remains the holder and the plaintiff “is unable to assert a claim for payment in
this case.” (Id. (internal quotes omitted)). Precisely. The plaintiff’s claim would in that
event fail, but subject matter jurisdiction would not.
The Inn next accuses the plaintiff of neglecting to prove that the assignment of
Colonial’s interest was not made improperly or collusively in order to invoke federal
jurisdiction, in violation of 28 U.S.C. § 1359. (Doc. 9 at 2-3). The Inn has not the
slightest shred, not the merest shadow, of evidence that the assignment was collusive.
Instead, the Inn assumes the plaintiff bears some universal, automatically triggered
obligation to prove the negative. On the contrary, “[t]he language of § 1359 does not
provide for applying a presumption of collusion in determining whether diversity
[4]

jurisdiction was manufactured in violation of the statute.” Ambrosia Coal &
Construction Co. v. Pages Morales, 482 F.3d 1309, 1314 (11th Cir. 2007). While a very
few factual situations may give rise to such a presumption and require explanation, id. at
1314-16, the Inn has no evidence that any of them exist here. Indeed, it would be
difficult to imagine a situation less likely to implicate collusive assignment than a bulk
assignment from the FDIC as receiver.
Defendant Bell merely repeats the Inn’s arguments, essentially verbatim, adding
nothing new to be considered by the Court. (Docs. 11, 27). Defendant Smith, however,
offers the additional argument that it is not enough for the complaint to allege the
plaintiff’s principal place of business as North Carolina. Smith asserts that the actual
location of the principal place of business is drawn into question because: (1) a lot of
banking is now done by “telecommuting and internet banking”; and (2) “Colonial Bank’s
former corporate headquarters now publicly displays that it is the home of the Plaintiff
(BB&T).” (Doc. 21 at 2; Doc. 29 at 2).
The defendants requested the opportunity to take jurisdiction-related discovery
before the Court’s ruling on their motions to dismiss. (Doc. 25 at 2-3; Doc. 29 at 2; Doc.
39 at 1-2). The Magistrate Judge provided them the opportunity to do so. (Doc. 42).
Even so, Smith offers not one particle of evidence to suggest that the plaintiff’s principal
place of business is not in North Carolina (or, more to the point, that it is in Alabama).
Smith does not even offer evidence to back up its allegation in brief that Colonial’s
former headquarters advertises itself as the home of the plaintiff.4 Indeed, the only record
evidence of the plaintiff’s principal place of business is the affidavit of the plaintiff’s
vice-president that corporate headquarters are in North Carolina and that this constitutes
the center of direction and control for the plaintiff. (Doc. 28, Exhibit 2). This evidence

4

It would hardly be surprising for a building formerly occupied by Colonial to now
display signage identifying the occupant as the plaintiff, but that would scarcely be evidence that
the building is the plaintiff’s principal place of business.

[5]

perfectly fits the “nerve center” approach recently endorsed by the Supreme Court. See
Hertz Corp. v. Friend, 130 S. Ct. 1181, 1192-93 (2010) (the nerve center is “where a
corporation’s officers direct, control and coordinate the corporation’s activities”).5 On
this record, there is not the dimmest possibility that the plaintiff is an Alabama citizen.
When properly challenged, a plaintiff must establish subject matter jurisdiction by
a preponderance of the evidence. E.g., Federated Mutual Insurance Co. v. McKinnon
Motors, LLC, 329 F.3d 805, 809 (11th Cir. 2003); accord McNutt v. General Motors
Acceptance Corp., 298 U.S. 178, 189 (1936). Assuming without deciding that the
defendants have properly challenged the existence of subject matter jurisdiction, the
preponderance of the evidence, presented after a full opportunity for jurisdictional
discovery, establishes that the defendants are all citizens of Alabama and that the plaintiff
is not. Subject matter jurisdiction patently exists.
For the reasons set forth above, the motions to dismiss the first amended complaint
are denied.6
DONE and ORDERED this 13th day of April, 2011.
s/ WILLIAM H. STEELE
CHIEF UNITED STATES DISTRICT JUDGE

5

Not that it matters, but all known recent federal cases to note the plaintiff’s principal
place of business have located it in North Carolina. See Branch Banking & Trust Co. v. Gulf
Island Development, L.L.C., 2010 WL 3548462 at *1 (S.D. Ala. 2010); Intec USA, LLC v.
Advanced Food Systems, B.V., 2009 WL 801812 at *1 (M.D.N.C. 2009); Justice v. Branch
Banking & Trust Co., 2009 WL 853993 at *1 (S.D.W. Va. 2009); Scott v. Branch Banking &
Trust Co., 2008 WL 4279598 at *1) (E.D. Va. 2008); Cole Shows Amusement Co. v. Branch
Banking & Trust Co., 2007 WL 1545885 at *1 n.1 (W.D. Va. 2007).
6

Also pending is the plaintiff’s motion to substitute Exhibit 19 to its first amended
complaint, so as to include the final page of that exhibit. (Doc. 48). The individual defendants
do not oppose the motion, but the Inn views it as a trick to rescue the complaint from dismissal
on jurisdictional grounds. (Docs. 51, 52). The Inn merely recycles the baseless arguments
addressed in text. Therefore, and because leave to amend is to be freely granted, Fed. R. Civ. P.
15(a)(2), the motion is granted. The plaintiff is ordered to file and serve, on or before April 20,
2011, a complete, entire, second amended complaint.

[6]