Kingman Holdings, LLC v. U.S. Bank National Association

Filing 21

REPORT AND RECOMMENDATION OF UNITED STATES MAGISTRATE JUDGE re 3 MOTION to Vacate Default Judgment filed by U.S. Bank National Association, 10 Second MOTION to Remand to State Court filed to correct exhibit filed by Kingm an Holdings, LLC, 8 Amended MOTION to Vacate filed by U.S. Bank National Association. Within fourteen (14) days after service of the magistrate judges report, any party may serve and file written objections to the findings and recommendations of the magistrate judge. 28 U.S.C.A. § 636(b)(1)(C). Signed by Magistrate Judge Don D. Bush on 5/3/16. (cm, )

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF TEXAS
SHERMAN DIVISION

KINGMAN HOLDINGS, LLC,

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Plaintiff,
VS.
U.S. BANK NATIONAL ASSOCIATION
Defendants.

Case No. 4:15cv588

REPORT AND RECOMMENDATION OF
UNITED STATES MAGISTRATE JUDGE
Pending before the Court are the following motions: Defendant U.S. Bank N.A., as Trustee’s
Motion to Vacate Default Judgment (Dkt. 3), Defendant U.S. Bank N.A., as Trustee’s Amended
Motion to Vacate Default Judgment (Dkt. 8), and Plaintiff’s Motion to Remand (Dkt. 10).
Plaintiff Kingman Holdings, LLC as Trustee for the 5205 Standstone Land Trust filed this
action against Defendant U.S. Bank National Association, as Successor Trustee to Wachovia Bank
N.A., formerly known as First Union National Bank as Trustee for Long Beach Mortgage Loan Trust
2002-2, on December 10, 2014 in the 219th District Court of Collin County, Texas (the “State Court
Action”). Plaintiff obtained a citation for Defendant to be served through the Texas Secretary of
State and named Kristin A. Strong as the individual to whom service of process could be forwarded.
Defendant did not appear in the State Court Action. Plaintiff then filed a motion for default
judgment, which the state court granted in May 2015. On August 31, 2015, Defendant then removed

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the State Court Action to this Court on the grounds of diversity jurisdiction.
In its motion to remand, Plaintiff argues that Defendant’s removal was untimely because it
was filed approximately 90 days after the expiration of the trial court’s plenary power. Defendant
argues that service of process in the State Court Action was not proper and the deadline to remove
to federal court never began to accrue. Defendant also seeks to vacate the default judgment entered
in the State Court Action, arguing that, because service was defective, no judgment can be had
against it.
The record before the Court sets forth the following chronology:
November 6, 2001

Defendant filed Foreign Corporate Fiduciary Probate Code Filing
filed in the Office of the Secretary of State of Texas designating
Kristin A. Strong as “the officer, agent or other person to whom
any notice or process received by the Secretary of State may be
forwarded.” See Dkt. 7-3 at 8-9, 7-6 at 8-9.

May 22, 2013

U.S. Bank N.A., as Trustee changed its registered agent to CT
Corporation System, 350 North St. Paul Street, Suite 2900, Dallas,
Texas 75201. See Dkt. 7-20. This was filed with the Secretary of
State of Texas on May 23, 2013. See Dkt. 7-20.

December 2, 2013

Defendant changed its registered agent to CT Corporation System,
1999 Bryan Street, Suite 900, Dallas, Texas 75201. See Dkt. 7-21.
This Statement of Change of Address of Registered Agent was
filed in the Office of the Secretary of State of Texas on December
2, 2013. See Dkt. 7-20.

December 10 & 16, 2014

Plaintiff’s petition and Plaintiff’s amended petition filed in the
State Court Action identifying Kristin A. Strong, Corporate
Counsel and Assistant Secretary, U.S. Bank National Association,
350 North Robert Street, Suite 495, St. Paul MN 55101, as the
person to whom the Texas Secretary of State should forward
service of process pursuant to Texas Estates Code §500.005. See
Dkt. 7-3 at 3; Dkt. 7-7 at 3

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December 16 & 18, 2014

Citations were issued in State Court Action naming Kristin A.
Strong as the individual to whom service could be forwarded on
Defendant’s behalf. See Dkts. 7-6 & 7-9.

On February 27, 2015

Return of Service on Kristin Strong, Corporate Counsel and
Assistant Secretary for U.S National Bank Associations, filed in
the State Court Action indicating that process was returned to the
Texas Secretary of State as “Return to Sender, Unable to Forward.”
See Dkt. 7-10.

March 3, 2015

Plaintiff files its Motion for Entry of Default Judgment in the State
Court Action identifying Kristin Strong as Defendant’s designee
and stating that service was effected on the Secretary of State on
January 15, 2015. See Dkt. 7-11.

On May 1, 2015

Hearing held in the State Court Action on Plaintiff’s Motion for
Default Judgment and Final Default Judgment entered. See Dkts.
7-15-7-16.

August 31, 2015

Defendant removed the State Court Action to this Court and filed a
motion to vacate the default judgment. See Dkts. 1 & 3.1

September 25, 2015

Plaintiff filed its motion to remand, arguing removal was not
timely. See Dkt. 10.
ANALYSIS

Defendant’s Removal and Plaintiff’s Motion for Remand
The Court first addresses whether removal was proper and whether this case should be
remanded.
The removal statute provides:
(b) The notice of removal for a civil action or proceeding shall be filed within
thirty days after the receipt by the defendant through service or otherwise of a
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Defendant amended its motion to vacate default judgment on September 11, 2015. See

Dkt. 8.
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copy of the initial pleading setting forth the claim for relief upon which such
action or proceeding is based....
28 U.S.C. § 1446.
Plaintiff argues that Defendant did not remove the State Court Action within 30 days of
service or actual notice of the complaint. Defendant argues, that because it was never properly
served in the State Court Action, the deadline to remove has not passed.
This Court evaluates whether Defendant was properly served under Texas law. Thompson
v. Deutsche Bank Nat. Trust Co., 775 F.3d 298, 304 (5th Cir. 2014). Plaintiff argues that Defendant
was served on January 15, 2015 through the Texas Secretary of State in accordance with the Texas
Estates Code. Plaintiff relies upon a Foreign Corporate Fiduciary Probate Code Filing filed in the
Office of the Secretary of State of Texas on November 6, 2001 as its basis for designating Kristin
A. Strong as Defendant’s representative for service. See Dkt. 7-3 at 8-9, 7-6 at 8-9. In the motion
for default judgment filed in the State Court Action, Plaintiff attached an affidavit executed by Mark
C. DiSanti, a member/manager of Plaintiff Kingman Holdings LLC, stating that:

“Defendant is U.S. BANK NATIONAL ASSOCIATION as SUCCESSOR
TRUSTEE TO WACHOVIA BANK, N. A., (FORMERLY KNOWN AS FIRST
UNION NATIONAL BANK), AS TRUSTEE FOR LONG BEACH
MORTGAGE LOAN TRUST 2002-2. Defendant is sued in its fiduciary capacity.
As a foreign fiduciary, it has irrevocably appointed the Texas Secretary of State as
its agent for service of process, pursuant to Estates Code §500.005. Defendant
has designated the following person as the person to whom the Secretary of State
should transmit service of process:
Kristin A. Strong
Corporate Counsel and Assistant Secretary, U.S. Bank National Association
350 North Robert Street, Suite 495

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St. Paul, MN 55101
Defendant was served with process in accordance with the requirements of the
Estates Code §500.005 and the directions on file from Defendant.”
Dkt. 7-11 at 6.
Plaintiff argues that, because Defendant is being sued in its representative capacity as a
Trustee for Long Beach Mortgage Loan Trust 2002-2, it was properly served pursuant to Texas
Estates Code §505.004 and §505.005. The Court does not agree.
That Defendant is being sued in its capacity as a trustee, as alleged by Plaintiff, is not enough
to trigger the provisions of the Texas Estate Code. “[T]he appointment of the Secretary of State as
the agent to receive service of process under Section 105A is limited to matters related to an estate
in which the foreign bank or trust company is acting as an executor, administrator, trustee, guardian
of the estate, or in any other fiduciary capacity.” Bank of New York v. Chesapeake 34771 Land
Trust, 456 S.W.3d 628, 635 (Tex. App. – El Paso 2015, pet. denied). Texas courts have been clear
that, to serve a defendant under the Texas Estates Code, a plaintiff must allege facts showing
jurisdiction under subchapter A of chapter 505 of the Texas Estates Code. U.S. Bank Nat’l Ass’n
v. TFHSP LLC Series 6481, 2016 WL 1084255, at *3 (Tex. App. – Fort Worth 2016, no pet. h.).
Here, Plaintiff’s Original Petition filed in the State Court Action contains no allegation that
U.S. Bank was appointed by will, deed, agreement, declaration, indenture, court order or decree, or
otherwise to act as a trustee of a personal or corporate trust, nor does it contain an allegation that
U.S. Bank has the corporate power to act as a trustee of a personal or corporate trust, executor,
administrator, or guardian of the estate as required by Sections § 505.003(a), (b) of the Texas Estates

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Code; and the petition contains no allegation that the suit is “an action or proceeding relating to a
trust, estate, fund, or other matter within this state with respect to which the fiduciary is acting in a
fiduciary capacity, including the acts or defaults of the fiduciary with respect to that trust, estate, or
fund.” as is required by Section 505.004(a)(2) of the Texas Estates Code. See Dkt. 3 at 2 (identifying
Defendant only as a “foreign fiduciary”). Nor does it contain any allegations that U.S. Bank is a
foreign corporate fiduciary or that U.S. Bank is a corporate fiduciary that does not have its main
office or a branch office in this state as required by Section 505.001 of the Texas Estates Code.
Therefore, even if the proper entity were served for the purposes of the Texas Estates Code, service
on Defendant was defective in this case. U.S. Bank Nat’l Ass’n, 2016 WL 1084255, at *3 (“we
conclude that Appellee has failed to allege jurisdictional facts that would provide a basis for
asserting jurisdiction over U.S. Bank under subchapter A of chapter 505 of the Texas Estates Code”).
For these reasons, the Court finds that Plaintiff’s reliance on the November 2001 Foreign
Corporate Fiduciary Probate Code Filing does not prove proper service here. Bank of New York, 456
S.W.3d at 628 (“Thus, the Bank’s appointment of the Secretary of State as the agent to receive
service of process under Section 105A is inapplicable in this case and fails to provide a basis for
asserting jurisdiction over the Bank.”).
Because the Court finds that there is no basis to serve Defendant under the Texas Estates
Code in this case, the Court does not reach Defendant’s argument that, even if the facts alleged here
had made service under the Texas Estates Code proper, the record in this case indicates that Kristin
A. Strong was no longer the proper individual at the time the materials were forwarded to the

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Secretary of State.
“A party suing a financial institution in Texas must serve process on the institution in
accordance with Section 17.028; otherwise, service is ineffective.” Bank of New York, 456 S.W.3d
at 632. That section requires service on the registered agent or, if there is no registered agent, the
president or a branch manager at any office located in this state. TEX. CIV. PRAC. & REM. CODE
ANN. § 17.028. That Defendant may be a foreign financial institution is irrelevant to the applicability
of Section 17.028. The Bank of New York Mellon v. Redbud 115 Land Trust, 452 S.W.3d 868, 871
(Tex. App. – Dallas 2014, pet. denied) (“However, nothing in the language of section 17.028 limits
its application to Texas financial institutions”).2 According to the record, at the time Plaintiff filed
the State Court Action, CT Corporation was Defendant’s registered agent. See Dkts. 7-20-7-21.
There is nothing in the record to show that Defendant was ever properly served.
As to Plaintiff’s argument that Defendant has failed to explain when or how it received actual
notice of this suit, such is not relevant here. “[A] defendant’s right to removal runs from the date
on which it is formally served with process.” Thompson v. Deutsche Bank Nat. Trust Co., 775 F.3d
298, 303 (5th Cir. 2014) (citing Murphy Bros., Inc. v. Michetti Pipe Stringing, Inc., 526 U.S. 344,

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The Court notes that Plaintiff’s counsel in this case is listed as counsel for the plaintiffs
who made similar– and ultimately rejected – arguments regarding service under the Texas
Estates Code in both the Bank of New York and U.S. Bank cases cited herein. See Bank of New
York, 456 S.W.3d 628; U.S. Bank Nat’l Ass’n, 2016 WL 1084255. Counsel for Plaintiff is also
listed as counsel for the plaintiff in the Bank of N.Y. Mellon case where the court addressed
proper service on a financial institution in Texas. The Bank of New York Mellon, 452 S.W.3d
868. Although the Court recognizes the need for advocacy, counsel is reminded of his ethical
duties in making good faith arguments to this Court which are supported by precedent and other
applicable authorities.
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347–48, 119 S. Ct. 1322, 143 L. Ed.2d 448 (1999)). Receipt of a courtesy copy is not enough; the
defendant must be formally served for the clock to start running. Id. “[A]ctual notice without
proper service is the same as no service.” The Bank of New York Mellon v. Redbud 115 Land Trust,
452 S.W.3d 868, 871 (Tex. App. – Dallas 2014, pet. denied). See also Wilson v. Dunn, 800 S.W.2d
833, 836 (Tex. 1990) (“Actual notice to a defendant, without proper service, is not sufficient to
convey upon the court jurisdiction to render default judgment against him.”).
The only issue before the Court as to the removal of this case is when the clock started
running. “A defendant has no obligation to appear in court or defend an action before it is formally
served with process directing it to appear before that forum.” Thompson, 775 F.3d at 303 (“Various
courts recognize that an unserved defendant retains the right to remove an action once it learns of
the litigation.”). Because nothing in the record indicates proper service on Defendant, Defendant’s
removal period did not begin to run under 28 U.S.C. § 1446(b) and the State Court Action was
timely removed.3 Remand is not appropriate,4 and Plaintiff’s Motion to Remand (Dkt. 10) should
be DENIED.

3

The Court also notes that The State Court Action was removed well within the one-year
time limit for diversity cases under 28 U.S.C. § 1446(c).
4

Plaintiff has not argued that this Court does not have diversity jurisdiction over its
claims, and the Court finds that diversity jurisdiction is sufficiently established from the record
before it.
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Default Judgment
Next, the Court turns to Defendant’s motions to vacate the default judgment entered in the
State Court Action.5 Defendant argues that, since service was not properly made, no default
judgment could be had against it and the judgment against it should be vacated. The Court again
agrees with Defendant.
Federal Rule of Civil Procedure 60(b)(4) authorizes a court to “relieve a party or its legal
representative from a final judgment” if “the judgment is void.” FED. R. CIV. P. 60(b)(4). “[A]
default judgment cannot withstand direct attack by a defendant who complains that he was not
served in strict compliance with applicable requirements.” Wilson v. Dunn, 800 S.W.2d 833, 836
(Tex. 1990). If a state trial court lacks jurisdiction over the parties because of insufficient service
of process, a default judgment obtained based on the insufficient service is void and the district court
must set it aside. Thompson, 775 F.3d at 306 (“[a] district court must set aside a void judgment.”).
Such is true even if the case was removed after the entry of the default judgment in state court. Id.

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The Court notes that Plaintiff failed to file any responses to the motions to vacate for
many months after they were filed and only filed a response after Defendant noted such on the
record. Plaintiff argues, without any authority, that it did not file a response because “Plaintiff
has been waiting for a determination of” its motion to remand. Dkt. 18 at 2. The Court notes
that the motion for remand was filed after Defendant’s first motion to vacate. The Court did not
stay Plaintiff’s response deadline to the motion to vacate pending a resolution of the motion to
remand. The Court further notes that the issues raised by the motion to remand and the motion to
vacate the default judgment – in particular the matter of service of process on Defendant – are
significantly intertwined. Plaintiff’s failure to respond does not go unnoted. In any event, to
ensure Plaintiff has been given a full opportunity to argue its position, the Court considers the
entire record before it, including the late-filed response.
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As discussed above, Defendant, a financial institution, was not served as is required under
Section 17.028 of the Texas Civil Practices & Remedies Code. TEX. CIV. PRAC. & REM. CODE ANN.
§ 17.028(d) (“If citation has not been properly served as provided by this section, a financial
institution may maintain an action to set aside the default judgment or any sanctions entered against
the financial institution.”). Because service on Defendant through the Secretary of State was
defective, the trial court in the State Court Action did not acquire personal jurisdiction over U.S.
Bank and the default judgment is therefore void. U.S. Bank Nat’l Ass’n, 2016 WL 1084255, at *5
(finding that default judgment obtained without jurisdiction over the defendant was void); Bank of
N.Y. Mellon, 452 S.W.3d at 873–74 (finding that default judgment entered in trial court was void
because the plaintiff did not strictly comply with rules for service of process on a financial institution
and that trial court therefore did not acquire jurisdiction over bank). See also PNS Stores, Inc. v.
Rivera, 379 S.W.3d 267, 275 (Tex. 2012) (“[A] judgment is void if the defects in service are so
substantial that the defendant was not afforded due process.”).
Defendant’s motion was filed within a reasonable time as it was filed immediately upon
removal to this Court (less than four months after the judgment was entered and within
approximately three months of the date the notice of default judgment was returned unserved). Not
only is Defendant’s request to vacate the default judgment timely under Federal Rule of Civil
Procedure 60, it would be timely under the applicable state court procedural provisions. See
Thompson, 775 F.3d at 305-306 (citing Tex. R. App. P. 30 and 26.1(c) and noting that the defendant
would have been entitled to take a restricted appeal in state court within six months of the final

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judgment had the case not been removed). There is nothing in the record that would show that either
the removal or motion to vacate were not timely made.
Because Defendant was not properly served with suit, no default can be had. The Motions
to Vacate Default Judgment (Dkts. 3 & 8) should be GRANTED and the judgment entered in the
State Court Action should be vacated.
RECOMMENDATION
For the reasons set forth herein, the Court recommends that Plaintiff’s Motion to Remand
(Dkt. 10) be DENIED, that Defendant U.S. Bank N.A., as Trustee’s Motion and Amended Motion
to Vacate Default Judgment (Dkts. 3 & 8) be GRANTED, that the Final Default Judgment signed
in this cause by the 219th District Court of Collin County, Texas, on May 1, 2015 in Cause No. 21904912-2014 be VACATED and SET ASIDE, and that this case should proceed in this Court.
Defendant shall have 21 days from the date of this report and recommendation to answer or
otherwise respond to Plaintiff’s First Amended Original Petition.
Within fourteen (14) days after service of the magistrate judge’s report, any party may serve
and file written objections to the findings and recommendations of the magistrate judge. 28
U.S.C.A. § 636(b)(1)(C).
A party is entitled to a de novo review by the district court of the findings and conclusions
contained in this report only if specific objections are made, and failure to timely file written
objections to any proposed findings, conclusions, and recommendations contained in this report shall
bar an aggrieved party from appellate review of those factual findings and legal conclusions accepted

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by the district court, except on grounds of plain error, provided that the party has been served with
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notice that such consequences will result from a failure to object. Id.; Thomas v. Arn, 474 U.S. 140,
148 (1985); Douglass v. United Servs. Auto Ass’n, 79 F.3d 1415, 1417 (5th Cir. 1996) (en banc),
superseded by statute on other grounds, 28 U.S.C. § 636(b)(1) (extending the time to file objections
from ten to fourteen days).
SIGNED this 3rd day of May, 2016.
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____________________________________
DON D. BUSH
UNITED STATES MAGISTRATE JUDGE

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