In Wells Fargo Bank, N.A. v. 390 Park Avenue Associates, LLC,1 a decision issued June 21, 2017 by Judge Lorna G. Schofield in the Southern District of New York recently reaffirmed the standard for determining diversity jurisdiction where a trustee that is a “real and substantial party” to the case brings suit in its own name on behalf of a trust.2 The court found that diversity jurisdiction existed based solely on the citizenship of Wells Fargo Bank, N.A. (“Wells Fargo”) where Wells Fargo, as Trustee, brought a foreclosure action “by and through” its special servicer CWCapital Asset Management LLC (“CWCapital”) on behalf of the trust.
As alleged in the complaint, 390 Park Avenue Associates, LLC (“390 Park”) entered into a Note and Loan Agreement evidencing a $110 million loan from the original lender, which was subsequently assigned to a commercial mortgage-backed securities trust (the “Trust”) for which Wells Fargo acted as Trustee. 390 Park subsequently defaulted by failing to pay the full amount due on or before the maturity date, which was March 11, 2015, and counsel for CWCapital, acting “on behalf of the Trust,” thereafter sent a default notice to 390 Park demanding payment of the outstanding amounts due. On November 22, 2016, Wells Fargo commenced the action in federal court in its own name as Trustee, by and through CWCapital, its special servicer. Diversity jurisdiction was alleged by asserting that (i) the $75,000 amount in controversy requirement was satisfied and (ii) that the action was between citizens of different states – which was undoubtedly met when solely considering Wells Fargo’s citizenship, and not that of CWCapital or the Trust’s beneficiaries.
The defendants filed a motion to dismiss for lack of subject matter jurisdiction, claiming that the citizenship of CWCapital and the trust beneficiaries must be taken into account for diversity purposes. In denying the defendants’ motion, the court stated that “Wells Fargo, as Trustee, is a real and substantial party to the controversy, and therefore its citizenship is used to assess diversity jurisdiction.” In finding that Wells Fargo was a real and substantial party, the court noted that the Pooling and Servicing Agreement of the Trust provided that the trustee had all right, title and interest in the loans that constituted the Trust’s assets and that the trustee had the ability to enforce payment and performance on the loans. Under the same agreement, CWCapital was responsible for administration of defaulted loans, including foreclosure. The court determined that the citizenship of CWCapital was irrelevant since it acted only in a representative capacity for Wells Fargo and thus failed to meet the standard for a real and substantial party in the case. The Court found that its role was merely to “represent the Trustee, the real party in interest, in certain dealings related to the loans held by the Trustee.” The citizenship of the Trust’s beneficiaries was equally irrelevant because, under circumstances where the plaintiff is an “active trustee”, it is the trustee’s citizenship that controls the diversity jurisdiction inquiry and not that of the individual beneficiaries.
The decision is consistent with a prior ruling of the United States Supreme Court. In Navarro Savings Association v. Lee, the Supreme Court stated that “active trustees whose control over the assets held in their names is real and substantial” are able to bring diversity actions based on the trustees’ citizenship, and not that of the trust’s beneficiaries.3 The court in Navarro did emphasize, and the Court noted, that the citizenship of the trustee would not be determinative in cases of a “naked trustee” acting as “mere conduits for a remedy flowing to others,” but in general, “if a trustee possesses customary powers to hold, manage, and dispose of assets, then that trustee is a real party in interest.”4 Ultimately, the 390 Park Ave. decision brings further clarity to the legal standard for diversity jurisdiction where an active trustee brings suit through a servicer on behalf of a trust.
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1 Wells Fargo Bank, N.A. v. 390 Park Ave. Assocs., LLC, No. 16 Civ. 9112, 2017 U.S. Dist. LEXIS 95833 (S.D.N.Y. June 21, 2017).
2 Under 28 U.S.C. § 1332(a), federal district courts have “diversity jurisdiction” to hear “all civil actions where the matter in controversy exceeds the sum or value of $75,000, exclusive of interest and costs, and is between (1) citizens of different States; (2) citizens of a State and citizens or subjects of a foreign state…(3) citizens of different States and in which citizens or subjects of a foreign state are additional parties; and (4) a foreign state. . .as plaintiff and citizens of a State or of different States.”
3 446 U.S. 458, 465 (1980).
4 Id. at 464. Other authorities in the Second Circuit that have followed the holding in Navarro, for example, include Wells Fargo Bank, N.A. v. Konover Dev. Corp., 630 Fed. App’x 46, 49 (2d Cir. 2015) and United States Bank Nat’l Ass’n v. Nesbitt Bellevue Prop. LLC, 859 F. Supp. 2d 602, 606 (S.D.N.Y. 2012).
