US Bank National Association v. White Clay Associates LLC
MEMORANDUM ORDER Denying 4 MOTION to Dismiss. Signed by Judge Richard G. Andrews on 6/17/2014. (nms)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
U.S. Bank National Association, as Trustee, as
successor in interest to Bank of America, National
Association, as Trustee, as successor by merger to
LaSalle Bank National Association, as Trustee for
The Registered Certificateholders of Bear Stearns
Commercial Mortgage Securities, Inc., Commercial
Mortgage Pass-through Certificates, Series 2007PWRl 7 c/o C-111 Asset Management LLC,
Civil Action No. 14-416-RGA
White Clay Associates, LLC,
Before the Court is Defendant's Motion to Dismiss (D.I. 4) and related briefing. (D.I. 5,
6). In 2007, the Defendant borrowed approximately $6 million from Prudential Mortgage Capital
Company, LLC (the "Note"). The Defendant secured the loan via a mortgage lien against a
parcel of real property located in Newark, DE (the "Mortgage"). Plaintiff is the current assignee
of the Note, holding it in trust, and now seeks to foreclose on the Mortgage.
Plaintiff initiated this action, based on diversity jurisdiction, "by and through C-III Asset
Management LLC, its special servicer and attorney-in-fact." (D.I. 1 at 1 if 1). Defendant alleges
that C-III, although not named as a plaintiff, is a real and substantial party, and therefore its
citizenship must be considered in order to determine whether complete diversity exists. Because
both Defendant and C-III are Delaware LLCs, Defendant alleges that Plaintiffs have not met
their burden of proving diversity.
A plaintiff bears the burden of proving diversity of citizenship by a preponderance of the
evidence. McCann v. Newman Irrevocable Trust, 458 F.3d 281, 290 (3d Cir. 2006). "[T]he
citizenship of an LLC is determined by the citizenship of each of its members." Zambelli
Fireworks Mfg. Co., Inc. v. Wood, 592 F.3d 412, 418 (3d Cir. 2010). Here, Plaintiff initially met
that burden by alleging in the complaint that it is a citizen of Ohio and " [u]pon information and
belief, none of the members of Defendant are citizens of the State of Ohio." (D.I. 1 at 2 ~ 4). In
its motion to dismiss, Defendant merely stated that C-III is a Delaware LLC, but made no
mention of the citizenship of C-III's members. (D.I. 4 at 3 ~ 7). Defendant is in the best position
to know the citizenship of its members. Plaintiff is in the best, or at least a better, position to
know the citizenship of the members of C-III. Yet neither side many any such representations.
Therefore I can only assume that both Defendant and C-III have members who are citizens of
Delaware, or at least of the same state, and thus C-III and Defendant are not diverse.
Even if C-III and Defendant are not diverse, however, diversity jurisdiction might still
exist. Defendant's main allegation is that C-III is a real and substantial party, and therefore its
citizenship must be considered. Yet the cases it relies upon in its motion to dismiss do not
support its argument. Defendant cites to Johnson v. SmithKline Beecham Corp., 724 F.3d 337,
358 (3d Cir. 2013), for the proposition that "a federal court must. .. base its jurisdiction only
upon the citizenship of parties with a real interest in the litigation." (D.I. 4 at 4 ~ 9). That case,
however, does not address when a court must take into account entities who are not part of the
litigation, but when a court may disregard nominal or formal parties. The full text of the citation
states that "a federal court must disregard nominal or formal parties ... and can base its
jurisdiction only upon the citizenship of parties with a real interest in the litigation." Johnson,
724 F.3d at 358. C-III is not a party to this litigation, and Defendant has made no allegation that
C-III is a necessary party. Even if C-III did have a real interest in the litigation, that fact would
not necessarily destroy diversity, as C-III is not a party to this action.
It was not until its reply that Defendant stated the arguably pertinent test 1 for determining
whether C-III's citizenship must be considered. In Oscar Gruss & Son, Inc. v. Hollander, 337
F.3d 186, 195 (2d Cir. 2003), the court stated that, "[W]here multiple parties all have a financial
interest in a lawsuit, a strategic choice of parties in order to maintain diversity is not considered
to be collusive so long as the party chosen to bring the suit is in fact the master of the litigation."
(quoting Transcontinental Oil Corp. v. Trenton Prods. Co., 560 F.2d 94, 103 (2d Cir. 1977)
(emphasis added in Gruss)). Defendant contends that to determine whether a party is master of
the litigation, "courts look to whether the party '(i) negotiated and signed the agreement that was
the subject of the action; (ii) was most familiar with the matters in the suit; and (iii) had a real
and substantial financial interest in the outcome of the litigation,"' and that C-III is the actual
master of the litigation under this "test." (D.I. 6 at 3 ~ 7) (quoting Oscar Gruss, 337 F.3d at 195).
However, the statement to which Defendant cites is not a test for determining whether a party is
master of the litigation. The Court of Appeals was simply noting the reasoning behind the
District Court's holding that the plaintiff was master of the litigation. Oscar Gruss, 337 F.3d at
195 ("Specifically, the district court cited, among other things, that the plaintiff: ( 1) had
negotiated and signed the agreement that was the subject of the action; (2) was most familiar
Defendant cites to a case from the Second Circuit, but does not cite to any from the Third Circuit or Supreme
with the matters in the suit; and (3) had a real and substantial financial interest in the outcome of
Even assuming that this were the appropriate "test," C-111 is not master of the litigation.
Neither Plaintiff nor C-111 negotiated and signed the Note. It is Plaintiff, not C-111, who holds the
Note. While C-111 is likely more familiar with the day to day administration of the Note, it was
Plaintiff, not C-111, who initiated this suit. While C-111 might have an option to purchase the
property, the option is not contingent upon this suit. 2 C-111 is owed monthly fees for servicing the
loan, and will get paid at some point. These fees are an obligation of the Trustee, not of the
Defendant. 3 That the payment might happen after the foreclosure, or even with funds from the
proceeds, is irrelevant. C-111 does not have a financial interest dependent on the outcome of the
Two cases received special attention at oral argument, and I address them in turn. The
first case is US. Bank Nat. Ass 'n v. Nesbitt Bellevue Property LLC, 859 F. Supp. 2d 602
(S.D.N.Y. 2012). There, the Trustee of a loan sued to appoint a receiver. Id. at 602. Under the
terms of the pooling and services agreement ("PSA"), the special servicer was obligated to
"direct, manage, prosecute and/or defend any and all claims and litigation relating to ... the loan."
Id. at 605. The defendants alleged that the special servicer's citizenship must be taken into
account for determining diversity. Id. at 606. The court held that the special servicer was not a
real and substantial party because someone "who sues solely in his capacity as an agent is not a
real and substantial party for diversity purposes." Id. at 608 (quoting Oscar Gruss, 337 F.3d at
At oral argument, Plaintiffs counsel explained that§ 3.18 of the PSA allows C-III to purchase the property only
after the loan payments are 60 or 120 days past due, and if another party fails to exercise its option. Notably, this
option does not depend on a foreclosure proceeding. Defendant's counsel did not contest these assertions.
The Complaint seeks no relief for C-III.
194). The court held that the special servicer's stake in the litigation was solely due to its duties
under the PSA. It therefore did not have its own stake in the litigation, thereby preserving
diversity. Id. at 609.
Defendant attempts to distinguish Nesbitt because there the plaintiff only sought to
appoint a receiver, and here the plaintiff "is seeking the remedy of foreclosure, which remedy
contractually vests C-III's option to purchase the Property." (D.I. 6 at 7 ~ 19). Yet the foreclosure
does not vest any rights in C-III. In fact, the language of the PSA in Nesbitt appears to be
identical to the language here. Compare Nesbitt, 859 F. Supp. 2d at 609 ("[N]either the Master
Servicer nor the Special Servicer shall, without the Trustee's written consent ... initiate any
action, suit or proceeding solely under the Trustee's name without indicating the Master
Servicer's or Special Servicer's as applicable, representative capacity.") with D.I. 5-1 at p. 123 §
3.0l(b). I see no reason to base the question of diversity on the remedy sought. Nesbitt is
Lastly, Defendant alleges that Plaintiff admitted that a special servicer "is a real party in
interest with standing in cases where the loan services by the servicer is the subject of litigation."
(D.I. 4 at 4-5
11) (quoting US. Bank Nat. Ass 'n v. Gunn, 2014 WL 1247085, at *2 (D. Del.
Mar. 25, 2014)). Yet a quick parsing of the case on which Defendant most heavily relies reveals
that a real party in interest is different from a real and substantial party:
Rule 17(a) of the Federal Rules of Civil Procedure requires that "[e]very action
shall be prosecuted in the name of the real party in interest." FED.R.Crv.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." 6A Charles Alan
Wright, et al., Federal Practice & Procedure § 1543, at 334 (2d ed. 1990). Rule 17
does not, however, affect jurisdiction and relates only to the determination of proper
parties and the capacity to sue. 4 James William Moore, et al., Moore's Federal
Practice § 17 .13  (3d ed. 1999). The Supreme Court has noted 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." Navarro, 446 U.S. at 462 n. 9[.] Thus,
although (under Rule 17(a)) [the plaintiff] is a "real party in interest" and, thus, the
action may properly be maintained in its name, [the plaintiff] must also establish
that it is a "real and substantial party to the controversy" for the purpose of
determining diversity jurisdiction. To establish whether a plaintiff is a "real and
substantial party to the controversy," a crucial distinction must be made between a
plaintiff who sues solely in his capacity as an agent, on the one hand, and, on the
other, a plaintiff who sues not only as an agent, but also as an individual who has
his own stake in the litigation. [The defendant] correctly notes that where a plaintiff
brings a suit solely in his representative capacity, the citizenship of the represented
party, and not that of the representative, controls. Moore's Federal Practice, supra
Oscar Gruss, 337 F.3d at 193-94. C-llI is not a party to this litigation. Had C-III brought suit, it
would likely be a real party in interest, and thereby have standing. However, even had C-III
brought suit, its citizenship would not be taken into account to determine diversity jurisdiction
because it would only be acting as an agent.
Defendant's Motion to Dismiss (DJ. 4) is DENIED.
Entered this J1_:- day of June, 2014.
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