Wells Fargo Bank, National Association v. Financial Freedom Senior Funding Corporation et al
OPINION AND ORDER: Motions terminated: 24 MOTION to Dismiss for Lack of Jurisdiction filed by CIT Bank, N.A., 30 LETTER MOTION for Oral Argument addressed to Judge Edgardo Ramos from Hamish P.M. Hume dated May 6, 20 16 filed by CIT Bank, N.A. CIT's motion to dismiss is DENIED, and CIT's request for oral argument is DENIED as moot. The parties are directed to appear for a conference on April 6, 2017 at 11:00 a.m. The Clerk of the Court is respectfully directed to terminate the motions, Docs. 24 & 30. (Status Conference set for 4/6/2017 at 11:00 AM before Judge Edgardo Ramos.) (Signed by Judge Edgardo Ramos on 3/29/2014) (ras)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
WELLS FARGO BANK, NATIONAL ASSOCIATION,
in its capacity as Indenture Trustee,
OPINION AND ORDER
15 Civ. 9861 (ER)
– against –
CIT BANK, N.A.,
Wells Fargo Bank, National Association, in its capacity as indenture trustee for the
Riverview Mortgage Loan Trust 2007-3 (“Plaintiff” or “Wells Fargo” or the “Trustee”), brings
this action against CIT Bank, N.A. (“Defendant” or “CIT”) to enforce its contractual right to
audit CIT’s servicing records for certain mortgage loans. 1 Before the Court is CIT’s motion to
dismiss the Complaint for lack of subject matter jurisdiction. For the reasons set forth below,
CIT’s motion is DENIED.
I. BACKGROUND 2
A. The Parties’ Rights and Obligations Under the SSA
Riverview Mortgage Loan Trust 2007-3 (the “Trust”), Wells Fargo, and CIT, among
others, are parties to a Sale and Servicing Agreement (“SSA”), dated September 28, 2007, that
establishes CIT as a servicer for certain reverse mortgage loans held by the Trust (the “Loans”).
Financial Freedom Senior Funding Corporation (“Financial Freedom”) was also initially named as a defendant, but
the Trustee voluntarily dismissed its claims against that entity on March 22, 2016. Doc. 21.
The following facts are drawn from the allegations in the Complaint, the documents attached thereto, and the
declarations and exhibits submitted in connection with the motion to dismiss. See LeBlanc v. Cleveland, 198 F.3d
353, 356 (2d Cir. 1999) (“[W]here jurisdictional facts are placed in dispute, the court has the power and obligation
to decide issues of fact by reference to evidence outside the pleadings, such as affidavits.”).
Compl. (Doc. 1) ¶¶ 2, 13, Ex. A (“SSA”). 3 The Loans secure certain notes (the “Notes”) issued
by the Trust to a number of investors (the “Noteholders”). Id ¶ 2.
At the time the Complaint was filed, the outstanding principal balance of all of the Loans
(roughly 4,000 in total) was approximately $430 million, with an average balance of over
$100,000 per Loan. Id. ¶ 14; Garfield Decl. (Doc. 28), Ex. E (“Offering Circular”) at 8, 33–34.
At one time, CIT serviced approximately 3,200 Loans; currently, however, it services
approximately 1,800. Offering Circular at 8, 33–34; Pl.’s Opp’n Mem. at 7. In exchange for its
services, CIT receives a fee of $35 per Loan serviced per month, which would appear to
currently total approximately $750,000 per year. SSA § 1.01.
Each Loan is insured by the Federal Housing Administration (“FHA”), a division of the
United States Department of Housing and Urban Development (“HUD”). Compl. ¶ 13. Thus, if
a Loan borrower borrows more than 98% of the value of the property securing the Loan, the
Trust may assign the Loan to HUD, and the FHA will make an insurance payment to the Trust
equal to the outstanding amount of the Loan. See SSA § 4.03(c); Offering Circular at 10.
Alternatively, if a Loan becomes due and payable before the borrower has borrowed more than
98% of the property’s value, and if the proceeds from a sale of the property are insufficient to
repay the Loan, the Trust can submit an insurance claim to HUD to recover the balance from the
FHA. Offering Circular at 9–10. 4
Financial Freedom is the signatory to the SSA, but CIT succeeded to some or all of Financial Freedom’s rights and
obligations under the agreement. Compl. at 1 n.1, ¶ 8. For ease of reference, the Court refers to CIT in place of
Financial Freedom where applicable.
Section 255 of the National Housing Act governs the insurance program, the purpose of which is:
(1) to meet the special needs of elderly homeowners by reducing the effect of the economic
hardship caused by the increasing costs of meeting health, housing, and subsistence needs at a
time of reduced income, through the insurance of home equity conversion mortgages [“HECMs”]
to permit the conversion of a portion of accumulated home equity into liquid assets; and
Pursuant to the SSA, CIT is responsible for submitting qualifying Loans to HUD in order
to collect insurance payments from the FHA. SSA § 4.03(c). If HUD denies insurance coverage
as a result of CIT’s failure to properly service a Loan, CIT is contractually obligated to
repurchase that Loan from the Trust:
In the event that HUD disavows the insurance coverage on any
Mortgage Loan serviced by [CIT] due to the failure of [CIT] to
service the Mortgage Loan in strict accordance with the terms of
this Agreement and the HUD Handbook, [CIT] shall repurchase
such Mortgage Loan at the Purchase Price within five (5) Business
Days of the day on which such insurance coverage was denied by
Id. § 4.13(a).
Given the important role CIT plays in this insurance scheme, the SSA provides the
Trustee with a right to audit CIT’s servicing records:
Right to Examine Servicer Records.
The Indenture Trustee, the Depositor, or their designees shall have
the right to examine and audit any and all of the related books,
records, or other information of either Servicer, whether held by
such Servicer or by another on its behalf, with respect to or
concerning this Agreement or the Mortgage Loans serviced by it,
during business hours or at such other times as may be reasonable
under applicable circumstances, upon reasonable advance notice.
The party requesting such audit shall pay its own expenses
associated with such examination.
Id. § 4.26. 5 Moreover, the SSA provides the Trustee with a right of indemnification in the event
that CIT fails to perform its contractual obligations:
(2) to encourage and increase the involvement of mortgagees and participants in the mortgage
markets in the making and servicing of home equity conversion mortgages for elderly
12 U.S.C. § 1715z-20(a).
CIT also provided Noteholders with access to certain summary information on a monthly basis regarding its
servicing of the Loans. Garfield Decl. ¶ 4.
Indemnification of the Trust by the Servicers.
Each Servicer shall indemnify and hold harmless the Depositor, the
Seller, the Trust, the Owner Trustee and the Indenture Trustee
(each such party, an “Indemnified Party”) and hold each of them
harmless against any and all claims, losses, damages, penalties,
fines, forfeitures, reasonable and necessary legal fees and related
costs, judgments, and any other costs, fees and expenses that the
Indemnified Party may sustain as a result of the failure of such
Servicer to perform its duties and service the Mortgage Loan
serviced by it in strict compliance with the terms of this
Agreement . . . .
Id. § 6.06.
B. Noteholders Direct the Trustee to Audit CIT’s Servicing Records
In or about July 2014, Jeremy Garfield, a director of Noteholder Dexia Credit Local
(“Dexia”), reviewed summary information provided by CIT that he claims indicated more than
$17 million in Loan payment shortfalls to the Trust. Garfield Decl. ¶ 5. Based on his previous
experience managing other investments backed by government-insured mortgage loans, Garfield
believed that the most plausible explanation for a shortfall of such magnitude was CIT’s failure
to properly service and/or secure FHA insurance for qualifying Loans. Id. Garfield cites as an
example one Loan that had an ending balance of $164,286. Id. ¶ 6. The net proceeds from the
sale of the property securing the Loan amounted to only $35,181. Id. Had CIT secured FHA
insurance for the Loan, the Trust could have recovered the balance from HUD. Id. However,
because CIT ostensibly failed to submit that one Loan to HUD, the Trust lost $129,105. Id.
On July 14, 2014, Garfield advised the Trustee of the Loan payment shortfall and
requested that the Trustee obtain from CIT information necessary to confirm whether CIT had
properly serviced and submitted Loans to HUD. Id. ¶ 7, Ex. A at 3. Approximately five weeks
later, on August 21, 2014, CIT responded to the Trustee’s inquiry, stating that the Trustee would
need to submit a formal written request with citation to the contractual provision providing
authority for the request. Id., Ex. A at 1. During the next several months, the Trustee, along
with certain Noteholders, made further efforts to obtain information from CIT to confirm
whether CIT had properly serviced and submitted Loans to HUD. Id. ¶ 8. CIT allegedly
rebuffed these efforts. Id.
Ultimately, in October 2014, a group of Noteholders (including Dexia) holding over 96%
of the outstanding principal balance of the Notes directed the Trustee to exercise its contractual
right to audit CIT’s servicing records. Id. ¶ 10, Ex. B. According to Garfield, the Noteholders
believed that an audit would confirm whether CIT’s servicing failures were depriving the Trust
of material benefits to which it was entitled under the terms of the SSA, including the right to
receive FHA insurance payments on qualifying Loans and the right to CIT’s repurchase of any
Loans that HUD rejects due to CIT’s failure to properly service the Loans. Id. ¶ 11. On October
29, 2014, the Trustee forwarded the Noteholders’ request to CIT. Id., Ex. C at 1. CIT responded
to the Trustee on January 15, 2015, explaining that the Trustee’s audit request was “completely
unwarranted and unreasonable.” Id., Ex. C at 2.
Months later, on June 25, 2015, the Trustee retained Concentrance Consulting Group,
Inc. (“Concentrance”) to conduct the audit with respect to approximately 50 to 300 Loans
serviced by CIT. Johnson Decl., Ex. A. Pursuant to a Due Diligence Review Contract, the
Trustee agreed to pay Concentrance between $82,491 and $244,491, depending on the number of
Loans Concentrance would ultimately review. Id., Ex. A at 6.
Thereafter, on July 13, 2015, the Trustee sent CIT a formal notice of its intent to examine
and audit CIT’s servicing records with respect to 305 Loans in accordance with its rights under
the SSA. Id., Ex. B. CIT responded on July 29, 2015, stating that it would provide
Concentrance with access to certain of the requested information but first demanding that
Concentrance, among other things: execute a satisfactory confidentiality agreement; explain in
writing the nature and purpose of the audit and the rationale for including each Loan in the
population of Loans that are the subject of the audit; and reduce the number of Loans to be
subject to the audit to no more than 195. Id., Ex. C. On August 11, 2015, the Trustee responded,
asserting that the conditions set forth in CIT’s letter were inconsistent with the SSA. Id., Ex. D.
Notwithstanding its objection, the Trustee disclosed that the purpose of the audit was to
determine whether CIT had been properly servicing the Loans. Id.
On or around September 15, 2015, CIT provided the Trustee with a proposed
Nondisclosure Agreement. Compl. ¶ 21, Ex. B (“CIT NDA”). Among other things, the CIT
NDA purported to: deem as “Confidential Information” any and all records relating to the Loans
or to CIT’s performance of its obligations under the SSA, id. § 1(a); deem all Confidential
Information to be the property of CIT, id. § 2(d); prohibit the Trustee from disclosing any
Confidential Information or any report based upon Confidential Information to any Noteholder,
id. § 2(c); and require the Trustee to indemnify CIT “against any and all claims, demands,
damages, actions, causes of action, losses and liabilities (including reasonable attorneys fees and
court costs), arising out of, related to, or made or incurred in connection with any unauthorized
disclosure or use of Confidential Information by the Trustee” or any Noteholder, id. § 4.
According to the Trustee, CIT maintained that it would not permit the Trustee to access its
servicing records unless the Trustee executed the CIT NDA. Compl. ¶ 26.
After further communications, on September 18, 2015, the Trustee provided CIT with a
revised NDA. Johnson Decl., Ex. E (“Trustee NDA”). The Trustee NDA narrowed the scope of
the term “Confidential Information” to encompass only documents relating to CIT’s “research,
development, or business affairs that CIT does not disclose to the public in the ordinary course of
its business.” Id. § 1(a). The Trustee NDA also provided that the Trustee could disclose to
Noteholders any report based on an audit of CIT’s records, as long as the Trustee first gave CIT
an opportunity to review the report and assert confidentiality over any portion thereof. Id. § 2(c),
(d). According to the Trustee, CIT rejected the Trustee NDA and demanded that the Trustee
execute the agreement CIT originally proposed. Compl. ¶ 27.
C. CIT Publicly Discloses Possible Breaches of Its Servicer Obligations
On November 13, 2015, CIT filed its Form 10-Q with the SEC. Garfield Decl., Ex. G.
In that report, CIT disclosed that in the third quarter of 2015, HUD’s Office of Inspector General
had served subpoenas on the company regarding its servicing of certain government-insured
reverse mortgage loans. Id. at 84. CIT explained that it was responding to the subpoenas and
that it did not have “sufficient information to make an assessment of the outcome or the impact
of the . . . investigation.” Id.
CIT further disclosed that “[a]s a servicer of residential mortgage loans, [it was] exposed
to contingent obligations for breaches of servicer obligations as set forth in industry regulations
established by HUD and FHA and in servicing agreements with the applicable counterparties,
such as Fannie Mae and other investors, which could include fees imposed for failure to comply
with foreclosure timeframe requirements.” Id. The company stated that it had “established
reserves for contingent servicing-related liabilities,” and that although the company “believe[d]
that such accrued liabilities [were] adequate, it [was] reasonably possible that such losses could
ultimately exceed the Company’s liability for probable and reasonably estimable losses by up to
approximately $26.4 million.” Id. 6
After this action was filed, on March 1, 2016, CIT disclosed to the SEC that it would be unable to timely file its
2015 annual report, because management had identified a “material weakness” in its reverse mortgage loan
servicing business. Garfield Decl., Ex. H at 2. Specifically, CIT disclosed that:
D. The Trustee Brings This Action to Enforce Its Contractual Rights
On December 17, 2015, the Trustee instituted this action against CIT, alleging that CIT
breached the SSA by refusing to allow the Trustee to conduct an audit of its servicing records
and by demanding that the Trustee sign the CIT NDA as a precondition to any audit. Compl.
¶¶ 28–33. The Trustee seeks specific performance of CIT’s obligations under the SSA, as well
as indemnification for the Trustee’s losses, costs, fees, and expenses arising from CIT’s failure to
comply with its contractual obligations. Id. ¶¶ 33–36. On April 1, 2016, CIT moved to dismiss
the case due to lack of subject matter jurisdiction. Doc. 24. The Trustee opposes the motion.
The only issue before the Court is whether the Trustee has satisfied the amount in
controversy requirement set by 28 U.S.C. § 1332. CIT maintains that the value of the Trustee’s
suit falls below the $75,000 minimum, and that the Court therefore lacks jurisdiction to hear the
case. For a number of reasons, the Court disagrees.
A party invoking the jurisdiction of the federal court has the burden of proving that it
appears to a “reasonable probability” that the claims were in excess of the statutory jurisdictional
amount at the time the action was commenced. Chase Manhattan Bank, N.A. v. Am. Nat’l Bank
& Tr. Co. of Chi., 93 F.3d 1064, 1070 (2d Cir. 1996) (quoting Tongkook Am., Inc. v. Shipton
Sportswear Co., 14 F.3d 781, 784 (2d Cir. 1994)); see also Kheel v. Port of N.Y. Auth., 457 F.2d
controls are not adequately designed and maintained to ensure the key judgments and assumptions
developed from loan file reviews or other historical experience are accurately determined, valid
and authorized; the data used in the estimation process is complete and accurate; and the
assumptions, judgments, and methodology continue to be appropriate.
Id. On a July 28, 2016 investor call to discuss the company’s financial results for the second quarter of 2016, Carol
Hayes, CIT’s CFO, disclosed that as a result of this “material weakness,” the company brought its reserves for
contingent servicing-related liabilities to approximately $500 million on the approximately $7 billion of filed claims
and loans in the foreclosure process. Trustee’s Aug. 22, 2016 Ltr. (Doc. 33), Attach. at 4. Hayes stated that the
company was “very disappointed with these developments,” but that it had “made good progress implementing
enhancements that strengthen the operations and controls” and that it “believe[d] these actions [would] mitigate
exposure on future maturity events on the remaining $13 billion of loans serviced.” Id.
46, 48 (2d Cir. 1972). Where jurisdictional facts are challenged, the party asserting jurisdiction
must support those facts with “competent proof” and justify its allegations by a “preponderance
of the evidence.” United Food & Commercial Workers Union, Local 919, AFL-CIO v.
CenterMark Properties Meridien Square, Inc., 30 F.3d 298, 304–05 (2d Cir. 1994) (quoting
McNutt v. Gen. Motors Acceptance Corp. of Indiana, Inc., 298 U.S. 178, 189 (1936)).
However, “[t]he rule governing dismissal for want of jurisdiction in cases brought in the
federal court is that, unless the law gives a different rule, the sum claimed by the plaintiff
controls if the claim is apparently made in good faith.” St. Paul Mercury Indem. Co. v. Red Cab
Co., 303 U.S. 283, 288 (1938). In order to justify dismissal, “[i]t must appear to a legal certainty
that the claim is really for less than the jurisdictional amount.” Id. at 289; see also Ocean Ships,
Inc. v. Stiles, 315 F.3d 111, 116 (2d Cir. 2002) (“This Court recognizes a rebuttable presumption
that the face of the complaint is a good faith representation of the actual amount in
controversy.”) (quoting Wolde-Meskel v. Vocational Instruction Project Cmty. Servs., Inc., 166
F.3d 59, 63 (2d Cir. 1999)); Tongkook, 14 F.3d at 785 (“[T]he legal impossibility of recovery
must be so certain as virtually to negat[e] the plaintiff’s good faith in asserting the claim.”).
The Trustee alleges that the amount in controversy “exceeds the sum of $75,000.”
Compl. ¶ 9. CIT fails to establish to a legal certainty that this is not so.
A. The Indemnification Claim
First, the Trustee seeks indemnification of its attorney’s fees and expenses incurred in
connection with its efforts to audit CIT’s records and asserts that the fees will almost certainly
amount to more than $75,000. Compl. ¶¶ 34–36; Pl.’s Opp’n Mem. at 21. 7 Because these costs
are recoverable pursuant to the parties’ contract, they may be used to satisfy the jurisdictional
The Trustee does not appear to be seeking indemnification of any other types of losses or damages sustained as a
result of CIT’s failure to comply with its obligations under the SSA. See Pl.’s Opp’n Mem. at 21 (arguing with
respect to its cause of action for “indemnification of its costs and attorney’s fees”).
amount. Givens v. W.T. Grant Co., 457 F.2d 612, 614 (2d Cir. 1972), vacated on other grounds,
409 U.S. 56 (1972); see also BanxCorp v. Costco Wholesale Corp., 978 F. Supp. 2d 280, 314
Although the Court cannot say with certainty what the Trustee’s fees and expenses will
ultimately be, or whether the Trustee will ultimately be entitled to recover them, it is not legally
certain that the Trustee will be unable to recover over $75,000 on its indemnification claim. To
the contrary, given the sophistication of the parties and their counsel, the nature of the dispute,
and the value of the assets underlying this case, it is not a stretch for the Court to conclude that
the indemnification claim is likely worth more than the statutory minimum. See BanxCorp, 978
F. Supp. 2d at 314 (finding that the plaintiff’s claim for attorney’s fees put it over the amount in
controversy threshold, since the fees “almost surely would total in the tens of thousands of
dollars at least”); see also Def.’s Mem. at 17 n.9 (conceding that “courts have allowed an
unspecified amount of attorneys’ fees to put a party over the amount-in-controversy threshold . . .
[where] the fees have been hardly speculative”). Indeed, at the time the Trustee filed its
opposition brief, its fees and expenses had already amounted to $62,973.58, Johnson Decl. ¶ 7,
and the parties have yet to even reach the merits of the case.
CIT argues that attorney’s fees may only be included in the amount in controversy
calculation if they were incurred before jurisdiction was invoked, relying on Crane Equipment &
Services, Inc. v. B.E.T. Construction, Inc., No. 14 Civ. 175 (WMS), 2015 WL 471323
(W.D.N.Y. Feb. 4, 2015); Houston v. Scheno, No. 06 Civ. 2901 (SJF), 2007 WL 2230093
(N.D.N.Y. July 31, 2007); and Sierp v. DeGreen Partners LP, No. 14 Civ. 2353 (PHX) (DGC),
2015 WL 464338 (D. Ariz. Feb. 4, 2015). Def.’s Mem. at 16. All three of these cases involved
claims that were removed from state to federal court, and in each case, the district court
ultimately concluded that the jurisdictional amount was not met because the attorney’s fees were
too speculative. See Sierp, 2015 WL 464338, at *4 (following other courts in the Ninth Circuit
in concluding that “future attorney’s fees are too speculative to be included”); Houston, 2007
WL 2230093, at *3–4 (finding that it could not “be ascertained from the face of the complaint
and the notice of removal that the amount in controversy, inclusive of attorney’s fee[s] . . . would
result in a claim against defendant in excess of the . . . jurisdictional amount”); Crane, 2015 WL
471323, at *4 (finding it “speculative to assume the attorney’s fees would bring the amount in
controversy past the required $75,000” because the party invoking jurisdiction “failed to support
its allegation” that they would).
Here, by contrast, it is not at all speculative to conclude that the Trustee’s indemnification
claim is worth more than the jurisdictional amount. In that sense, the Court finds this case more
akin to BanxCorp, wherein the district court concluded that it could reasonably estimate the
plaintiff’s attorney’s fees. 978 F. Supp. 2d at 314. Moreover, as in BanxCorp, and unlike the
cases to which CIT cites, this case was initially filed in federal court, thus mandating application
of the legal certainty test. Id. at 312–14; see St. Paul Mercury, 303 U.S. at 290–91 (“A different
situation is presented in the case of a suit instituted in a state court and thence removed. There is
a strong presumption that the plaintiff has not claimed a large amount in order to confer
jurisdiction on a federal court or that the parties have colluded to that end. For if such were the
purpose suit would not have been instituted in the first instance in the state but in the federal
court.”) (footnote omitted). Applying that test, the Court finds that the Trustee’s indemnification
claim alone easily satisfies the amount in controversy requirement.
B. The Breach of Contract Claim
The Trustee also seeks specific performance of CIT’s obligation to permit an audit of its
servicing records. Compl. ¶¶ 28–33. CIT asserts that “in DiTolla, the Second Circuit recognized
that the monetary value of [audit or accounting] rights cannot be determined for purposes of
calculating the amount-in-controversy requirement.” Def.’s Mem. at 9 (citing DiTolla v. Doral
Dental IPA of N.Y., LLC, 469 F.3d 271, 276–77 (2d Cir. 2006)); see also id. at 1 (“Federal courts
have uniformly concluded that the valuation of audit rights is an inherently speculative exercise
that cannot satisfy the amount-in-controversy requirement for diversity jurisdiction.”). CIT reads
DiTolla too expansively. In fact, DiTolla merely recognized, as other courts have, that
“[c]alculating the amount in controversy in an action for an accounting is not a straightforward
task. As the remedy sought is equitable, and not legal, a monetary value cannot be easily
assigned.” 469 F.3d at 276 (emphasis added); see also Rockwell v. SCM Corp., 496 F. Supp.
1123, 1125 (S.D.N.Y. 1980) (“When equitable relief is sought, it becomes increasingly more
difficult to place a value upon the controversy.”). Though difficult and not straightforward, the
task is not impossible, as CIT would have this Court believe.
When damages are not requested, “the value of the suit’s intended benefit or the value of
the right being protected or the injury being averted constitutes the amount in controversy.”
DiTolla, 469 F.3d at 276–77 (quoting Kheel, 457 F.2d at 49); see also Hunt v. Wash. State Apple
Advertising Comm’n, 432 U.S. 333, 347 (1977) (“In actions seeking declaratory or injunctive
relief, it is well established that the amount in controversy is measured by the value of the object
of the litigation.”). The amount must be “capable of valuation in monetary terms” and must not
be too “speculative” or “indirect.” Kheel, 457 F.2d at 49. “[A]bsolute certainty in valuation of
the right involved is not required to meet the amount in controversy requirement.” Moore v.
Betit, 511 F.2d 1004, 1006 (2d Cir. 1975). However, the amount must be capable of being
“ascertained pursuant to some realistic formula.” Id.
As an initial matter, CIT urges the Court not to apply the legal certainty test to the
Trustee’s contract claim, arguing that the test does not apply to claims seeking equitable relief.
Def.’s Mem. at 6–7. When it established the test, however, the Supreme Court made no
distinction between claims for damages and claims for equitable relief. See St. Paul Mercury,
303 U.S. at 288–90. Rather, the distinction the Court made was between claims initially brought
in federal court and those removed from state court. Id. at 290–91. For a claim filed in federal
court, the Court explained, the plaintiff is entitled to a rebuttable presumption because “[h]e
knows or should know whether his claim is within the statutory requirement as to amount.” Id.
at 290. Decades after St. Paul Mercury was decided, the Supreme Court in Hunt relied on the
test to determine whether the amount in controversy was satisfied by a plaintiff seeking only
declaratory and injunctive relief to prevent the enforcement of a state statute. 432 U.S. at 346.
The Court ultimately found in favor of federal jurisdiction, noting that the record before it
precluded “saying ‘to a legal certainty’” that the harms that would flow from enforcement of the
statute would not, “over time, if they [had] not done so already,” amount to the required
minimum. Id. at 348.
CIT relies entirely on cases from other circuits to support its narrow interpretation of the
legal certainty test. Def.’s Mem. at 6–7 (citing Macken ex rel. Macken v. Jensen, 333 F.3d 797,
800 (7th Cir. 2003); Federated Mutual Insurance Co. v. McKinnon Motors, LLC, 329 F.3d 805,
807 (11th Cir. 2003); St. Paul Reinsurance Co. v. Greenberg, 134 F.3d 1250, 1253 (5th Cir.
1998); and Sanchez v. Monumental Life Insurance Co., 102 F.3d 398, 401–02 (9th Cir. 1996)).
In the Second Circuit, however, courts have continued to apply the test to claims seeking
declaratory and equitable relief. See, e.g., Moore, 511 F.2d at 1006; Am. Safety Casualty Ins. Co.
v. 385 Onderdonk Ave., LLC, 124 F. Supp. 3d 237, 241–43 (E.D.N.Y. 2015); Soley v.
Wasserman, No. 08 Civ. 9262 (KMW) (FM), 2011 WL 4352384, at *7–9 (S.D.N.Y. Aug. 11,
2011), adopted in part by 823 F. Supp. 2d 221, 229 (S.D.N.Y. 2011); Correspondent Servs.
Corp. v. JVW Inv., Ltd., No. 99 Civ. 8934 (RWS), 2004 WL 2181087, at *6 (S.D.N.Y. Sept. 29,
2004), aff’d sub nom. Correspondent Servs. Corp. v. First Equities Corp. of Fla., 442 F.3d 767
(2d Cir. 2006); Sager Spuck Statewide Supply Co. v. Hartford Casualty Ins. Co., No. 96 Civ. 550
(FJS), 1996 WL 743840, at *3 (N.D.N.Y. Dec. 5, 1996).
Notwithstanding the precedents that are at odds with CIT’s position, this Court need not
decide whether the legal certainty test applies to the Trustee’s contract claim. Even without the
benefit of a presumption, the Trustee has sufficiently shown to a reasonable probability that the
value of the claim is in excess of the statutory jurisdictional amount.
First, “the value of the right being protected” by way of this action can be measured by
calculating the outstanding principal value of the approximately 1,800 Loans being serviced by
CIT. After all, the very purpose of the Trustee’s contractual audit right is to ensure that CIT is
properly servicing the Loans and making appropriate payments to the Trust. See Rockwell, 496
F. Supp. at 1125 (measuring the amount in controversy in an action seeking the production of a
shareholder list by the value of the plaintiff’s shares, “the property right which plaintiff [sought]
to protect by invocation of one of the equitable remedies”); see also Soley, 2011 WL 4352384, at
*7–9 (measuring the amount in controversy by the value of each loan and investment underlying
the action for accounting, as they were the “principal ‘objects’ of [the] litigation”); Sills v.
Ronald Reagan Presidential Found., Inc., No. 09 Civ. 1188 (GEL), 2009 WL 1490852, at *5
(S.D.N.Y. May 27, 2009) (measuring the amount in controversy in an action for accounting by
the sum of donations the plaintiff contended were not used as specified, the “object of [the]
litigation—what plaintiff [sought] to protect”). 8 Although that precise number is not evident
from the parties’ submissions, the Court easily concludes that it meets the statutory minimum, as
CIT was servicing approximately 1,800 Loans, the average balance of which was over $100,000,
and the outstanding principal balance of all 4,000 Loans was over $430 million at the time the
Complaint was filed. Compl. ¶ 14; Offering Circular at 8, 33–34.
Alternatively, the value of “the injury being averted” by way of this action also satisfies
the jurisdictional minimum, as the Trustee seeks an audit of CIT’s servicing records in order to,
among other things, investigate the cause of a $17 million shortfall in Loan payments to the
Trust, reduce that shortfall to the extent CIT breached its obligation to repurchase any of those
Loans from the Trust, and prevent future shortfalls from occurring. See Hunt, 432 U.S. at 347
(measuring the “value of the object of the litigation” by losses that had been suffered and that
would continue to be suffered in the absence of injunctive relief). Relying on DiTolla, CIT
argues that the relief the Trustee might seek in some future action cannot satisfy the amount in
controversy in this action, Def.’s Mem. at 13, but DiTolla does not stand for such a broad
proposition. In fact, in DiTolla, the Second Circuit did consider the damages that might be
sought from the administrator of a fund should an accounting of the fund reveal fraud. 469 F.3d
at 277. Because the court “[could not] say beyond mere speculation, however, whether those
DiTolla, on which CIT heavily relies, did not concern a plaintiff seeking to protect his rights. Rather, the plaintiff
in that case sought an accounting to determine whether he had any rights at all. 469 F.3d at 277 (“DiTolla asserts
only a beneficial interest in the Pool. By doing so he does not place the entirety of the Pool ‘in controversy,’
because he makes no claim that he owns it and at most he suggests a claim to some yet undefined portion the
amount of which is contingent on the outcome of the accounting.”); see also id. at 277 n.4 (distinguishing DiTolla’s
case from one in which a plaintiff “sought an accounting of a $4,000 farm, in which she had an ownership interest”).
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