Demarest v. HSBC Bank USA, N.A.

920 F.3d 1223

Joan DEMAREST, Plaintiff-Appellant,

v.HSBC BANK USA, N.A., AS TRUSTEE FOR the REGISTERED HOLDERS OF NOMURA HOME EQUITY LOAN, INC., ASSET-BACKED CERTIFICATES, SERIES 2006-HE2, incorrectly sued herein as HSBC Bank USA, N.A.; Ocwen Loan Servicing, LLC; Mortgage Electronic Registration Systems, Inc., incorrectly sued herein as Mortgage Electronic Registration Systems; Western Progressive, LLC; Does, 1–10, inclusive, Defendants-Appellees.

No. 17-56432

United States Court of Appeals, Ninth Circuit.

Argued and Submitted March 6, 2019 Pasadena, California

Filed April 8, 2019

Richard Lawrence Antognini (argued), Law Office of Richard L. Antognini, Grass Valley, California, for Plaintiff-Appellant.

Emilie K. Edling (argued) and Robert W. Norman Jr., Houser & Allison APC, Portland, Oregon, for Defendants-Appellees.

Before: FERDINAND F. FERNANDEZ and MILAN D. SMITH, JR., Circuit Judges, and DANA L. CHRISTENSEN,^* Chief District Judge.

M. SMITH, Circuit Judge:

Plaintiff-Appellant Joan Demarest initiated an action in state court stemming from the foreclosure of her property. The defendants removed the action to federal district court based on diversity jurisdiction. The district court granted the defendants' motion for summary judgment and entered final judgment.

On appeal, Demarest challenges for the first time the district court's subject matter jurisdiction over the action. She argues that the Supreme Court's decision in Americold Realty Trust v. ConAgra Foods, Inc. , ––– U.S. ––––, 136 S.Ct. 1012, 194 L.Ed.2d 71 (2016), changed the law for determining the citizenship of a trust in such a way that complete diversity of citizenship might not have existed in this case. We hold that prior authority regarding a traditional trust's citizenship still controls, and conclude that the district court properly exercised subject matter jurisdiction.

FACTUAL AND PROCEDURAL BACKGROUND

Demarest filed the underlying complaint in this case in Los Angeles County Superior Court on May 27, 2016, naming as defendants HSBC Bank USA N.A. (HSBC), Ocwen Loan Servicing, LLC (Ocwen), Western Progressive, LLC (Western Progressive), and Mortgage Electronic Registration Systems, Inc. (MERS) (collectively, Defendants). The dispute concerned a loan Demarest had taken out on her West Hills, California home in 2005; the loan's promissory note and deed of trust were purportedly "pooled into a securitized trust labeled NORMA [sic] HOME EQUITY LOAN, INC., ASSET-BACKED CERTIFICATES, SERIES 2006-HE2 ..." Demarest alleged that HSBC acted as trustee for this investment trust.

In fact, Demarest's loan had been securitized and the deed of trust assigned to HSBC, as trustee for the Registered Holders of Nomura Home Equity Loan, Inc., Asset-Backed Certificates, Series 2006-HE2 (the Trust). The Trust was governed by a contract entitled "Pooling and Servicing Agreement Dated as of April 1, 2006" (the Agreement), entered into between HSBC and various other parties. Among other things, the Agreement established the Trust, enumerated its assets, and appointed HSBC as trustee, and it described the Trust as a common law trust governed by New York law. Under the Agreement, all "right, title and interest" in the assets of the Trust were conveyed to the "Trustee [HSBC] for the use and benefit of the Certificateholders," and the trustee was given the power to hold the Trust's assets, sue in its own name, transact the Trust's business, terminate servicers, and engage in other necessary activities.

In her complaint (which she filed following her default on the loan and multiple initial actions aimed at combatting the foreclosure of her property), Demarest asserted various causes of action under California law, including wrongful foreclosure. Defendants removed the case to the district court. The notice of removal specifically stated that it was filed on the behalf of, among others, "HSBC Bank USA, N.A., as Trustee for the registered holders of Nomura Home Equity Loan, Inc., Asset-Backed Certificates, Series 2006-HE2 ... incorrectly sued herein as HSBC Bank USA N.A." Diversity jurisdiction pursuant to 28 U.S.C. § 1332 was the only basis for federal jurisdiction claimed in the notice. It asserted that Demarest was a citizen of California, Ocwen was a citizen of Florida and Georgia, MERS was a citizen of Delaware and Virginia, and Western Progressive was a nominal defendant and was therefore disregarded for diversity purposes. As for HSBC, the notice stated,

HSBC is a national banking association organized under the laws of the United States with its main office in McLean, Virginia.... Since its main office is located in Virginia, HSBC is a citizen of Virginia for diversity purposes. At the present time and at the commencement of this action, HSBC is not a citizen of California.

(citation omitted). Given that no Defendant was, like Demarest, a citizen of California, the notice concluded that diversity jurisdiction was established, and that removal was proper.

After the district court dismissed MERS from the action through a motion for judgment on the pleadings, the remaining Defendants moved for summary judgment. The district court granted the motion and entered final judgment for Defendants. This timely appeal followed.

STANDARD OF REVIEW AND JURISDICTION

"We review de novo a district court's determination that diversity jurisdiction exists." Dep't of Fair Emp't & Hous. v. Lucent Techs., Inc. , 642 F.3d 728, 736 (9th Cir. 2011) (quoting Kroske v. U.S. Bank Corp. , 432 F.3d 976, 979 (9th Cir. 2005) ). We have jurisdiction pursuant to 28 U.S.C. § 1291.

ANALYSIS

Demarest does not contest the district court's summary judgment decision on appeal.

Instead, she challenges, for the first time, the court's subject matter jurisdiction over the action.

I. Challenging Jurisdiction on Appeal

Federal subject matter jurisdiction—specifically, diversity jurisdiction—exists where an action is between "citizens of different States" and "the matter in controversy exceeds the sum or value of $75,000, exclusive of interest and costs." Id. § 1332(a). It requires "complete diversity" of citizenship, meaning that "the citizenship of each plaintiff is diverse from the citizenship of each defendant." Caterpillar Inc. v. Lewis , 519 U.S. 61, 68, 117 S.Ct. 467, 136 L.Ed.2d 437 (1996).

A defendant may remove to federal court "any civil action brought in a State court of which the district courts of the United States have original jurisdiction." 28 U.S.C. § 1441(a). Although "[p]rocedural defects in the removal of an action may be waived by the failure to make a timely objection before the case proceeds to the merits," defects pertaining to "the subject matter jurisdiction of the court cannot be waived and may be raised at any time." O'Halloran v. Univ. of Wash. , 856 F.2d 1375, 1379 (9th Cir. 1988) (quoting Libhart v. Santa Monica Dairy Co. , 592 F.2d 1062, 1065 (9th Cir. 1979) ). Therefore, where, as here, a district court disposes of an action on the merits and an appellant then challenges jurisdiction for the first time, "the relevant jurisdictional question on [ ] appeal ... is ‘not whether the case was properly removed, but whether the federal district court would have had original jurisdiction in the case had it been filed in that court.’ " Aradia Women's Health Ctr. v. Operation Rescue , 929 F.2d 530, 534 (9th Cir. 1991) (quoting Grubbs v. Gen. Elec. Credit Corp. , 405 U.S. 699, 702, 92 S.Ct. 1344, 31 L.Ed.2d 612 (1972) ). Accordingly, we must determine whether the district court would have had diversity jurisdiction if Demarest had originally filed her case in federal court.¹

II. Citizenship of a Trust

Demarest contends that Defendants failed to establish diversity jurisdiction because, following the Supreme Court's decision in Americold , they were required to demonstrate the citizenship of the Trust's investors, and could not simply rely on the citizenship of HSBC as its trustee. To address this argument, we briefly consider the Court's treatment of trust citizenship in Americold and two other pertinent decisions.

Decades ago, in Navarro Savings Ass'n v. Lee , the Supreme Court addressed "whether the trustees of a business trust may invoke the diversity jurisdiction of the federal courts on the basis of their own citizenship, rather than that of the trust's beneficial shareholders." 446 U.S. 458, 458, 100 S.Ct. 1779, 64 L.Ed.2d 425 (1980). There, the plaintiffs were eight trustees of a Massachusetts trust who sued in their own names, and the defendant disputed the existence of complete diversity on the ground that, because the trust beneficiaries rather than the trustees were the real parties in controversy, the citizenships of the former ought to have controlled. Id. at 459–60, 100 S.Ct. 1779. The Court reaffirmed the proposition that "a trustee is a real party to the controversy for purposes of diversity jurisdiction when he possesses certain customary powers to hold, manage, and dispose of assets for the benefit of others," concluding, "For more than 150 years, the law has permitted trustees who meet this standard to sue in their own right, without regard to the citizenship of the trust beneficiaries. We find no reason to forsake that principle today." Id. at 464–66, 100 S.Ct. 1779.

Ten years later, in Carden v. Arkoma Associates , the Court addressed the related issue of "whether, in a suit brought by a limited partnership, the citizenship of the limited partners must be taken into account to determine diversity of citizenship among the parties." 494 U.S. 185, 186, 110 S.Ct. 1015, 108 L.Ed.2d 157 (1990). It held that "diversity jurisdiction in a suit by or against the [limited partnership] entity depends on the citizenship of ‘all the members.’ " Id. at 195–96, 110 S.Ct. 1015 (quoting Chapman v. Barney , 129 U.S. 677, 682, 9 S.Ct. 426, 32 L.Ed. 800 (1889) ). Notably, the Court also determined that Navarro was consistent with this rule, because that case, unlike Carden , "did not involve the question...