Windward Bora LLC v. Browne

110 F.4th 120

WINDWARD BORA LLC, Plaintiff-Appellant-Cross-Appellee, v. Constance R. BROWNE and Royston D. Browne, Defendants-Appellees-Cross-Appellants.

Docket Nos. 23-684-cv

23-748-cv

August Term 2023

United States Court of Appeals, Second Circuit

Argued: March 5, 2024

Decided: July 26, 2024

Appeal from the United States District Court for the Southern District of New York.

Seth D. Weinberg, Syosset, NY, for Plaintiff-Appellant-Cross-Appellee Windward Bora LLC.

Joseph A. Altman, Fleetwood, NY, for Defendants-Appellees-Cross-Appellants Constance R. Browne and Royston D. Browne.

Before: Walker, Nardini, and Menashi, Circuit Judges.

John M. Walker, Jr., Circuit Judge:

Plaintiff-Appellant Windward Bora LLC ("Windward") purchased a junior promissory note signed by Defendants-Appellees Constance and Royston Browne (the "Brownes") that was originally secured by a junior mortgage on real property. Prior to this purchase, Windward's predecessor-in-interest brought an action on the junior mortgage and obtained a final judgment of foreclosure. Without obtaining leave of the court in which that action was brought, Windward filed the underlying diversity action against the Brownes, seeking to recover on the promissory note that had been secured by the junior mortgage.

Both parties moved for summary judgment. The district court (Moses, M.J.) granted the Brownes' motion and denied Windward's. It first determined that there was diversity jurisdiction by comparing the national citizenship of the Brownes with that of Windward's sole member, a U.S. lawful permanent resident, concluding that the state domiciles of the parties were irrelevant. It then held that the suit was precluded by the pertinent New York election-of-remedies statute because Windward failed to seek leave prior to proceeding at law (by suing on the note) when its predecessor-in-interest had already proceeded in equity (by suing on the mortgage) to recover the same debt. The district court found that no special circumstances existed to excuse Windward's failure.

We agree with the district court's conclusion that diversity jurisdiction is present in this case but disagree that the parties' state domiciles were irrelevant to making that determination: such jurisdiction would not exist had Windward's permanent resident member been domiciled in the same state as the Brownes when the complaint was filed. Our analysis resolves a divide between the district courts in this circuit, clarifying that there is no diversity jurisdiction in a suit between U.S. citizens and unincorporated associations with lawful permanent resident members if such jurisdiction would not exist in a suit between the same U.S. citizens and those permanent resident members as individuals.

We also conclude that the district court did not err in granting summary judgment for the Brownes under New York's election-of-remedies statute and therefore AFFIRM.

BACKGROUND

In 2005, Constance and Royston Browne purchased a property in Bronx County, New York (the "Property"). To make that purchase, they obtained a loan in the amount of $536,000 from First Estate Funding Corp ("FEFC") upon executing a promissory note in favor of FEFC (the "Senior Note") that was secured by a mortgage on the Property (the "Senior Mortgage"). The Brownes then obtained a second loan in the amount of $100,500 from FEFC by executing another promissory note (the "Junior Note") secured by a second mortgage on the Property (the "Junior Mortgage"). Both of these notes and mortgages subsequently passed hands many times.

The Brownes stopped making payments and thus defaulted on both mortgages in 2008. In 2009, Aurora Loan Services, LLC ("Aurora"), which then held the Senior Mortgage and Note, brought a foreclosure action on the mortgage against the Property in New York state court (the "State Action").¹ The Brownes and Mortgage Electronic Registration Systems, Inc. ("MERS"), which then held the Junior Mortgage and Note, were named as defendants in the action but failed to answer.

In 2016, while the State Action was ongoing, the newest acquirer of the Junior Mortgage and Note, Gustavia Home, LLC ("Gustavia"), filed a foreclosure action on the mortgage against the Property in federal court (the "Federal Action").² The Brownes and the newest acquirer of the Senior Mortgage and Note, Nationstar Mortgage LLC ("Nationstar"), were named as defendants in the action. Only Nationstar appeared and answered.

In 2017, a judgment of foreclosure and sale was issued in the State Action, which extinguished the rights of the Brownes and MERS (and their successors) in the Property. The state court ordered that the Property be sold at public auction to satisfy the amount due on the Senior Note and that any surplus monies be deposited with the Bronx County Clerk. Gustavia, as MERS' successor, moved to intervene in the State Action to enjoin the foreclosure sale, but its motion was dismissed as untimely.

In March 2018, Nationstar moved to dismiss Gustavia's federal action for lack of subject-matter jurisdiction, invoking the Rooker-Feldman doctrine, as well as arguing that the federal action was barred by res judicata and collateral estoppel. Less than a month later, Nationstar and Gustavia stipulated to dismiss with prejudice Gustavia's claims against Nationstar in the Federal Action (the "Nationstar Agreement"). The precise terms of this stipulation— including any potential payment to Gustavia—are not in the record. In May 2018, Gustavia obtained a default judgment in the federal action against the Brownes, which directed that the Property be sold at public action to satisfy the amount due on the Junior Note.

In 2019, the Property was sold at public auction at a price of $1,293,832.88 pursuant only to the State Action. The record does not reflect whether any surplus monies remained from the auction proceeds after the Senior Note was paid off.

On June 19, 2020, Windward Bora LLC, the present holder of the Junior Note,³ filed this federal action, seeking recovery under that Note. Windward invoked the district court's diversity jurisdiction under 28 U.S.C. § 1332. It is undisputed that at the time of filing, the Brownes were U.S. citizens domiciled in New York and Windward's sole member, Yonel Devico, was a citizen of Morocco and a U.S. lawful permanent resident.⁴ Devico's domicile, however, is disputed. Windward alleged in its complaint that Devico was a Florida domiciliary; it also submitted a picture of Devico's Florida driver's license, issued in April 2019, and an affidavit sworn by Devico in April 2021 in a different legal case that stated he resided in Florida.⁵ The Brownes contended that Devico was domiciled in New York when the complaint was filed, pointing to two documents as evidence: a satisfaction of mortgage signed by Devico in January 2018 that stated he resided in New York and a court summons dated October 2020 indicating that Devico owned a New York condominium at that time.

In 2022, after discovery closed, the parties filed cross-motions for summary judgment. The Brownes made two key arguments relevant to this appeal. First, they asserted that the district court lacked diversity jurisdiction because both they and Devico were domiciled in New York and, as a limited liability company ("LLC"), Windward took on Devico's state domicile for jurisdictional purposes. Second, they argued that, even if the district court had jurisdiction, New York's election-of-remedies statute barred a suit on the Junior Note because Windward's predecessor, Gustavia, had already pursued and obtained a judgment of foreclosure on the Junior Mortgage in the previous federal action and Windward had not sought leave of the court before filing its suit.

The district court disagreed with the Brownes that Devico was domiciled in New York rather than Florida, concluding that the Brownes' documents had not "raise[d] a genuine dispute of fact as to Devico's domicile." Sp. App'x 3 n.3. But the district court also found the question of Devico's state domicile "irrelevant" to whether it had diversity jurisdiction. Id. Instead, it concluded that only Devico's national citizenship was relevant for jurisdictional purposes: because Devico was a Moroccan citizen at the time of filing, Windward was also a Moroccan citizen—and thus diverse from the Brownes regardless of Devico's state domicile.

After determining that it had jurisdiction, the district court granted summary judgment in favor of the Brownes and dismissed the complaint. Although it found that Windward had otherwise established a prima facie case to enforce the Junior Note, it agreed with the Brownes that New York's election-of-remedies law—specifically, section 1301(3) of the New York Real Property Actions and Proceedings Law ("RPAPL")—barred Windward's suit. This appeal and cross-appeal followed.

DISCUSSION

Windward argues on appeal that the district court erred in holding that its claim was barred by RPAPL § 1301(3). The Brownes assert that, although the district court correctly dismissed the case under RPAPL § 1301(3), it erred in rejecting their other arguments: that there was no diversity jurisdiction, that Windward lacked standing to sue on the Junior Note, and that the case was time-barred.

Addressing the Brownes' threshold arguments, we agree with the district court that the parties are diverse. But, unlike the district court, we conclude that diversity here hinged on the parties' state domiciles. We also agree, for the reasons previously explained by the district court, that Windward has standing and that the case is not time-barred. See Sp. App'x 15-16, 20-22. Finally, we hold that the district court properly dismissed the complaint under RPAPL § 1301(3) on the ground that no special circumstances excused Windward from its obligation to request leave to sue on the Junior Note.

I. Diversity Jurisdiction

We first address whether diversity jurisdiction is present in this case, which will determine if we have the...