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Demarest v. HSBC Bank USA, N.A.

United States Court of Appeals, Ninth Circuit

April 8, 2019

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.

          Argued and Submitted March 6, 2019 Pasadena, California

          Appeal from the United States District Court for the Central District of California, No. 2:16-cv-05088-AB-E André Birotte Jr., District Judge, Presiding

          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.

         SUMMARY[**]

         Diversity Jurisdiction

         The panel affirmed the district court's exercise of diversity jurisdiction over an action stemming from the foreclosure of plaintiff's property.

         Plaintiff's mortgage loan was securitized and the deed of trust assigned to HSBC Bank USA N.A., as trustee for a trust. Defendants removed the action to federal court based on diversity jurisdiction.

         The panel held that the Supreme Court's decision in Americold Realty Trust v. ConAgra Foods, Inc., 136 S.Ct. 1012 (2016), did not upset the holding in Navarro Ass'n v. Lee, 446 U.S. 458, 458 (1980) (holding 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"), nor other precedent where, as here, HSBC-the trustee of a traditional trust-was sued in its own name. The panel concluded that because HSBC and the other defendants were not, like plaintiff, citizens of California, there was complete diversity, and the district court properly exercised diversity jurisdiction.

          OPINION

          MILAN D. 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., 136 S.Ct. 1012 (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 ...

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