Nationstar Mortgage LLC v. Mohr et al
MEMORANDUM-DECISION AND ORDERED, that Nationstars Complaint (Dkt. No. 1) is DISMISSED for lack of subject matter jurisdiction, and without prejudice to refiling in state court; and it is further ORDERED, that Nationstars Motion (Dkt. No. 12) is DENIE D; and it is further ORDERED, that if Nationstar wishes to continue this action in federal court, it must move to amend its Complaint with thirty (30) days of the filing date of this Memorandum-Decision and Order; and it is further ORDERED, that if N ationstar fails to file such a motion as directed in this Memorandum-Decision and Order within thirty (30) days, the Clerk of the Court shall close this case without further order of the Court; and it is further ORDERED, that if the Court grants such a motion to amend the Complaint, Nationstar may then file a renewed motion for default judgment consistent with this Memorandum-Decision and Order Signed by Senior Judge Lawrence E. Kahn on April 13, 2017. (sas)
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF NEW YORK
NATIONSTAR MORTGAGE LLC,
RONALD T. MOHR, et al.,
MEMORANDUM-DECISION AND ORDER
Before the Court is plaintiff Nationstar Mortgage LLC’s motion for default judgment,
seeking the foreclosure and sale of real property owned by defendant Ronald Mohr. Dkt. No. 12
(“Motion”); see also Dkt. No. 13 (“Attorney Affidavit”). For the following reasons, Nationstar’s
Motion is denied and its complaint is dismissed for lack of subject matter jurisdiction.
In this case, Nationstar seeks a judgment for unpaid amounts on Mohr’s home mortgage,
along with the foreclosure and sale of the property in order to satisfy this debt. Dkt. No. 1
(“Complaint”) ¶¶ 1, 9–12. Nationstar claims that this Court has subject matter jurisdiction based
on diversity of the parties’ citizenships. Id. ¶ 7. Specifically, the Complaint alleges that
Nationstar is a citizen of Delaware (by way of a tortuous chain of ownership), that Mohr is a
citizen of Indiana, and that Mortgage Electronic Registration Systems, Inc. (“MERS”)—which is
named as a defendant here due to its holding a subordinate mortgage on the property—is a citizen
of Rhode Island. Id. ¶¶ 2–4. Importantly, the Complaint notes that MERS “is named solely as
nominee for Advanced Financial Services, Inc.” and that “[a]ll substantive interest in the
mortgage remains in the hand of Advanced Financial Services.” Id. ¶ 4.
Mohr and MERS failed to appear in this action, and the Clerk of the Court entered their
default on September 28, 2016. Dkt. No. 10. Nationstar then moved for default judgment. Mot.
Pursuant to the Local Rules, Nationstar’s counsel supplied an Attorney Affidavit with the
Motion, which included a copy of the Complaint, a proposed judgment, the entry of default,
calculations of damages and fees, and sworn statements attesting that the defendants were
properly served but nonetheless failed to appear. Attorney Aff. ¶¶ 3–4, 7, 9; Dkt. Nos. 13-1 to -8.
But the Attorney Affidavit did not include sworn statements that Mohr is not an infant or
otherwise incompetent, that he is not in the military service, that the amount sought “is justly due
and owing,” “that no part has been paid,” and that the “disbursements sought to be taxed” either
have been or necessarily will be made. L.R. 55.2(a). Additionally, Nationstar’s request for
attorney’s fees states that because counsel plans to charge Nationstar “a flat fee for foreclosure
work, individual time sheets are not maintained.” Dkt. No. 13-5 (“Fees Affirmation”) ¶ 4.
A. Subject Matter Jurisdiction
Subject matter jurisdiction is a fundamental predicate to judgment in the federal courts.
“Dismissal of a case for lack of subject matter jurisdiction . . . is proper ‘when the district court
lacks the statutory or constitutional power to adjudicate it.’” Ford v. D.C. 37 Union Local 1549,
579 F.3d 187, 188 (2d Cir. 2009) (per curiam) (quoting Makarova v. United States, 201 F.3d
110, 113 (2d Cir. 2000)). A lack of subject matter jurisdiction cannot be waived, and may be
raised by motion or sua sponte at any time. E.g., Transatlantic Marine Claims Agency, Inc. v.
Ace Shipping Corp., 109 F.3d 105, 107 (2d Cir. 1997); see also Fed. R. Civ. P. 12(h)(3) (“If the
court determines at any time that it lacks subject-matter jurisdiction, the court must dismiss the
action.”). The party asserting subject matter jurisdiction must show the basis for jurisdiction on
the face of its pleading, and—if challenged—must prove its existence by a preponderance of the
evidence. E.g., Makarova, 201 F.3d at 113; Augienello v. FDIC, 310 F. Supp. 2d 582, 587–88
(S.D.N.Y. 2004). This is true even on a motion for default judgment, since the principle that a
default deems the well-pleaded allegations of the complaint to be admitted is inapplicable when a
court doubts the existence of subject matter jurisdiction. Transatlantic Marine, 109 F.3d at 108.
B. Default Judgment
“Federal Rule of Civil Procedure 55 provides a two-step process that the Court must
follow before it may enter a default judgment against a defendant.” Elec. Creations Corp. v.
Gigahertz, Inc., No. 12-CV-1423, 2013 WL 3229125, at *3 (N.D.N.Y. June 25, 2013) (quoting
Robertson v. Doe, No. 05-CV-7046, 2008 WL 2519894, at *3 (S.D.N.Y. June 19, 2008)). “First,
under Rule 55(a), when a party fails to ‘plead or otherwise defend . . . the clerk must enter the
party’s default.’” Id. (alteration in original) (quoting Robertson, 2008 WL 2519894, at *3).
Second, under Federal Rule of Civil Procedure 55(b)(2), “the party seeking default judgment is
required to present its application for entry of judgment to the court.” Id. (quoting Robertson,
2008 WL 2519894, at *3).
“When a default is entered, the defendant is deemed to have admitted all of the wellpleaded factual allegations in the complaint pertaining to liability. . . .” Bravado Int’l Grp. Merch.
Servs., Inc. v. Ninna, Inc., 655 F. Supp. 2d 177, 188 (E.D.N.Y. 2009) (citing Greyhound
Exhibitgroup, Inc. v. E.L.U.L. Realty Corp., 973 F.2d 155, 158 (2d Cir. 1992)). “While a default
judgment constitutes an admission of liability, the quantum of damages remains to be established
by proof unless the amount is liquidated or susceptible of mathematical computation.” Flaks v.
Koegel, 504 F.2d 702, 707 (2d Cir. 1974); accord, e.g., Bravado Int’l, 655 F. Supp. 2d at 189–90.
“[E]ven upon default, a court may not rubber-stamp the non-defaulting party’s damages
calculation, but rather must ensure that there is a basis for the damages that are sought.” United
States v. Hill, No. 12-CV-1413, 2013 WL 474535, at *1 (N.D.N.Y. Feb. 7, 2013) (alteration in
original) (quoting Overcash v. United Abstract Grp., Inc., 549 F. Supp. 2d 193, 196 (N.D.N.Y.
2008)). “The burden is on the plaintiff to establish its entitlement to recovery.” Bravado Int’l, 655
F. Supp. 2d at 189. “While ‘the court must ensure that there is a basis for the damages specified
in a default judgment, it may, but need not, make the determination through a hearing.’” Id. at
190 (quoting Fustok v. Conticommodity Servs., Inc., 122 F.R.D. 151, 156 (S.D.N.Y. 1988),
aff’d, 873 F.2d 38 (2d Cir. 1989)).
Under Local Rule 55.2(b), the moving party must submit with its motion for default
judgment: (1) a clerk’s certificate of entry of default, (2) a proposed form of default judgment,
(3) a copy of the pleading to which no response has been made, and (4) an affidavit. L.R. 55.2(b).
The affidavit must set forth that: (1) the party against whom judgment is sought is not an infant,
incompetent, or in military service; (2) the party against whom judgment is sought “has defaulted
in appearance in the action”; (3) service was properly effected under Federal Rule of Civil
Procedure 4; (4) the amount sought “is justly due and owing,” and no part has been paid; and (5)
“[t]he disbursements sought to be taxed have been made in the action or will necessarily be made
or incurred.” L.R. 55.2(a).
A. Lack of Subject Matter Jurisdiction
“A federal court’s jurisdiction must clearly appear from the face of [the] complaint . . . .”
Verosol USA, Inc. v. Fla. Shades, Inc., No. 91-CV-6263, 1992 WL 696643, at *1 (S.D.N.Y.
Sept. 17, 1992) (quoting Whitelock v. Leatherman, 460 F.2d 507, 514 (10th Cir. 1972)); accord
Atlas Supply Co. v. Transcon Lines Inc., No. 83-CV-5622, 1984 WL 1202, at *1 (S.D.N.Y. Oct.
29, 1984). “And when a complaint fails to plead subject matter jurisdiction, the Court is
obligated to dismiss it sua sponte.” Receivables Exch., LLC v. Hotton, No. 11-CV-292, 2011
WL 239865, at *1 (E.D.N.Y. Jan. 21, 2011) (citing Fed. R. Civ. P. 12(h)(3)).
Nationstar asserts federal jurisdiction because its citizenship is diverse from the
defendants in this case. Compl. ¶ 7. “Under the standard diversity jurisdiction statute, 28 U.S.C.
§ 1332(a), there must be ‘complete’ diversity among the parties, meaning that each defendant
must be a citizen of a different state from each plaintiff.” U.S. Bank Tr., N.A. v. Dupre, No.
15-CV-558, 2016 WL 5107123, at *2 (N.D.N.Y. Sept. 20, 2016) (Kahn, J.) (citing Caterpillar
Inc. v. Lewis, 519 U.S. 61, 67–68 (1996); Owen Equip. & Erection Co. v. Kroger, 437 U.S. 365,
373–74 (1978)). At first glance, the Complaint seems to meet this requirement: it alleges that
Nationstar is a citizen of Delaware, while Mohr is a citizen of Indiana and MERS—due to its
state of incorporation and principal place of business—is a citizen of Rhode Island. Compl.
“[MERS’s] corporate status, however, does not end the jurisdictional inquiry in this
case.” Airlines Reporting Corp. v. S&N Travel, Inc., 58 F.3d 857, 861 (2d Cir. 1995). This is
because “the ‘citizens’ upon whose diversity a plaintiff grounds jurisdiction must be real and
substantial parties to the controversy.” Navarro Sav. Ass’n v. Lee, 446 U.S. 458, 460 (1980)
(citing McNutt v. Bland, 43 U.S. (2 How.) 9, 15 (1844)). “Thus, a federal court must disregard
nominal or formal parties and rest jurisdiction only upon the citizenship of real parties to the
controversy.” Id. at 461.
This question of subject matter jurisdiction differs from the party’s ability to sue (or be
sued) in its own name under the Federal Rules of Civil Procedure. Thus, even if the party
“serving in a representative capacity is a real party in interest in the sense that the action is
properly maintained in his name, a representative is not necessarily the real party in interest for
the purpose of determining diversity jurisdiction.” Airlines Reporting Corp. v. S&N Travel, Inc.,
857 F. Supp. 1043, 1047 (E.D.N.Y. 1994) (citation omitted) (quoting Wilsey v. Eddingfield, 780
F.2d 614, 615 (7th Cir. 1985)), aff’d, 58 F.3d 857; see also Oscar Gruss & Son, Inc. v. Hollander,
337 F.3d 186, 194 (2d Cir. 2003) (“[A]lthough there exists a ‘“rough symmetry” betwen 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.’” (second alteration in original) (quoting Navarro,
446 U.S. at 462 n.9)).
In the Complaint, Nationstar alleges that MERS “is named solely as nominee” for a third
party called Advanced Financial Services, and that “[a]ll substantive interest in the mortgage
remains in the hand of Advanced Financial Services.” Compl. ¶ 4. This allegation prevents
Nationstar from using MERS’s citizenship when asserting federal jurisdiction, since Advanced
Financial Services—not MERS—is the real party in interest.
Airlines Reporting Corp. demonstrates why MERS’s citizenship cannot be deemed
controlling for diversity purposes. In that case, the plaintiff—ARC—was an intermediary created
by the airline industry “to function as a clearinghouse and collection agent for transactions
between the air carriers and travel agents.” 58 F.3d at 859. When ARC filed a lawsuit attempting
to collect funds from a travel agent on behalf of a member air carrier, the Second Circuit
determined that the federal courts lacked subject matter jurisdiction because the actual air
carriers—and not ARC—were the real parties in interest, and thus their citizenships were
determinative for diversity purposes. Id. at 859–60, 865. In relevant part, the court held that it
would “not deem ARC’s corporate citizenship controlling when it acts merely as an agent
representing the interests of others. In such a case, the citizenship of the represented individuals
controls for diversity purposes, as they are the real and substantial parties to the dispute.” Id.
Just as in Airlines Reporting Corp., Nationstar has not shown that MERS has “any
corporate interests of its own” in this case. Id.; see also Oscar Gruss, 337 F.3d at 194 (“[W]here a
plaintiff brings a suit solely in his representative capacity, the citizenship of the represented
party, and not that of the representative, controls.”). For this reason, at least one other court has
found that MERS is not the real party in interest for diversity purposes in cases concerning
mortgages it holds as nominee. Hien Pham v. Bank of N.Y., 856 F. Supp. 2d 804, 811 (E.D. Va.
2012). Accordingly, MERS’s citizenship cannot be used to establish diversity jurisdiction, and
Nationstar’s Complaint must be dismissed.
Even if MERS were the real party in interest for diversity purposes, the Court would have
serious doubts concerning its jurisdiction as a factual matter. This is because several other courts
have found that MERS is a citizen of Delaware, which would destroy diversity given
Nationstar’s Delaware citizenship. See, e.g., Ventures Tr. 2013-I-H-R v. Shores Villas Condo.
Ass’n, No. 16-CV-21677, 2016 WL 4542160, at *2 (S.D. Fla. Aug. 31, 2016) (“MERS actually
appears to be a citizen of both Virginia and Delaware.” (quoting Smith v. Bank of Am. Corp.,
605 F. App’x 311, 315 n.3 (5th Cir. 2015) (per curiam))); Wood v. Bank of Am., No. 14-CV-73,
2014 WL 11515725, at *1 (N.D. Tex. May 8, 2014) (same); Anderson v. CitiMortgage, Inc., No.
13-CV-36, 2013 WL 5303800, at *1 (E.D. Tex. Sept. 20, 2013) (same); Johnlawis v. U.S. Bank
Nat’l Ass’n, No. 12-CV-3360, 2013 WL 655808, at *3, *5 (S.D. Tex. Feb. 21, 2013) (same);
Haynes v. JPMorgan Chase Bank, N.A., No. 11-CV-13858, 2011 WL 4595271, at *2 (E.D.
Mich. Oct. 3, 2011) (same). Because MERS’s own citizenship is ineffective for diversity
purposes, however, there is no need for Nationstar to submit further factual material on this issue.
If Nationstar wishes to proceed in federal court, it must, within thirty (30) days, move to
amend its Complaint to include an allegation of Advanced Financial Services’ citizenship. This
motion to amend must be prepared in accordance with Local Rule 7.1(a)(4), which establishes
the form for such a motion and lists the required papers. Failure to comply with the Local Rules
or to address this deficiency may result in the denial of the motion and dismissal of this case
without further leave to amend.
B. Procedural Requirements for Default Judgment
While Nationstar’s Motion must be denied because of the Complaint’s dismissal, it
would also be denied because of its failure to comply with the Court’s procedural requirements
for default judgment. The Court already discussed this issue in another recent case in which
Nationstar’s attorneys—Gross Polowy, LLC—served as the lender’s counsel. U.S. Bank Tr.,
N.A. v. Monroe, No. 15-CV-1480, 2017 WL 923326, at *6 (N.D.N.Y. Mar. 8, 2017) (Kahn, J.).
Just as in that case, the Attorney Affidavit filed in support of Nationstar’s Motion did not include
several items required by Local Rule 55.2, such as Mohr’s competence to be sued and military
service status. Furthermore, the attorney’s fee request states that Nationstar’s counsel did not
keep contemporaneous time records in support of the amount it wishes to tax against Mohr. Fees
Affirmation ¶ 4.1
If Nationstar moves to amend its Complaint, and the Court subsequently grants that
motion, Nationstar may again seek default judgment against Mohr. Such a motion must,
however, meet each of the requirements in the Local Rules and address all other issues discussed
in this Memorandum-Decision and Order. Failure to do so may result in the denial of the motion
and dismissal of this case. The Court also repeats the same warning concerning attorney’s fees
that it issued to Gross Polowy in the Monroe case, 2017 WL 923326, at *1 n.1, and any
subsequent motion for default judgment should not include a request for attorney’s fees that is
unsupported by contemporaneous time records.
Accordingly, it is hereby:
Indeed, Gross Polowy’s ex post assessment of time worked, when multiplied by the
rates specified in the affirmation, suspiciously sums to the exact flat rate charged to Nationstar.
Fees Affirmation ¶¶ 4–6. This apparent reverse engineering of the bill is unacceptable when
seeking court-ordered attorney’s fees. See, e.g., OneWest Bank, N.A. v. Denham, No.
14-CV-5529, 2015 WL 5562980, at *10 (E.D.N.Y. Aug. 31, 2015) (denying Gross Polowy
attorney’s fees because “courts in this Circuit will not award attorney’s fees assessed at a flat-rate
unless the supporting documentation is detailed enough to satisfy the Second Circuit's
requirement that ‘attorneys’ fees must be based on contemporaneous time records specifying
relevant dates, time spent and work done’” (quoting OneWest Bank, N.A. v. Cole, No.
14-CV-3078, 2015 WL 4429014, at *6 (E.D.N.Y. July 17, 2015))).
ORDERED, that Nationstar’s Complaint (Dkt. No. 1) is DISMISSED for lack of
subject matter jurisdiction, and without prejudice to refiling in state court; and it is further
ORDERED, that Nationstar’s Motion (Dkt. No. 12) is DENIED; and it is further
ORDERED, that if Nationstar wishes to continue this action in federal court, it must
move to amend its Complaint with thirty (30) days of the filing date of this MemorandumDecision and Order; and it is further
ORDERED, that if Nationstar fails to file such a motion as directed in this
Memorandum-Decision and Order within thirty (30) days, the Clerk of the Court shall close this
case without further order of the Court; and it is further
ORDERED, that if the Court grants such a motion to amend the Complaint, Nationstar
may then file a renewed motion for default judgment consistent with this Memorandum-Decision
and Order; and it is further
ORDERED, that the Clerk shall serve a copy of this Memorandum-Decision and Order
on all parties in accordance with the Local Rules.
IT IS SO ORDERED.
April 13, 2017
Albany, New York
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