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Bank of America, N.A v. 3301 Atlantic

June 29, 2012


The opinion of the court was delivered by: Gold, S., United States Magistrate Judge:

Memorandum & Order and Report & Recommendation


Plaintiff, Bank of America, brings this action as trustee of a Real Estate Mortgage Investment Conduit ("REMIC") trust seeking a judgment of foreclosure on a mortgage on real property contained in two lots in Brooklyn, New York. The mortgage secures a note executed by defendant 3301 Atlantic and guaranteed by its principal, Apergis (referred to herein collectively as the "obligor defendants").

The obligor defendants do not challenge the existence of the mortgage or that 3301 Atlantic is in default. Rather, they oppose plaintiff's motion for summary judgment and cross-move to dismiss by challenging plaintiff's assertion of diversity jurisdiction and the validity of the transfer of the mortgage to the REMIC trust. Defendants Blue Ridge Farms, Inc. ("BRFI"), and Jeffrey and Richard Siegel move for certain protections should a judgment of foreclosure be entered against the obligor defendants.

The plaintiff and obligor defendants have consented to have me decide the pending motions. See Docket Entries 55, 64. The other defendants have not consented, however, and I will therefore report and recommend on plaintiff's motion as it pertains to them and on the cross-motion made by BRFI and the Siegels. For the reasons set forth below, plaintiff's motion is granted as to the obligor defendants and the obligor defendants' motion is denied. I respectfully recommend that the plaintiff's summary judgment motion also be granted as to defendants Martin Sussman, BRFI, and the Siegels and that judgment as to stayed defendant Blue Ridge Foods be deferred.*fn1 I further recommend that the cross-motion made by defendants BRFI and Jeffrey and Richard Siegel be denied without prejudice.


This statement of facts is drawn primarily from the Rule 56.1 statements submitted by three groups of parties involved in the case: those of the plaintiff ("Pl. R. 56.1 Statement," Docket Entry 44-2), the obligor defendants, 3301 Atlantic and Apergis ("3301 Atlantic R. 56.1 Statement," Docket Entry 42), and defendants Blue Ridge Farms, and Jeffrey and Richard Siegel ("BRFI R. 56.1 Statement," Docket Entry 47-2).*fn2 Plaintiff claims to hold a mortgage note as a trustee for a REMIC. See Pl. R. 56.1 Statement ¶ 12; Amend. Compl. at 1.*fn3 A real estate mortgage investment conduit, or "REMIC," trust "consists of a pool of mortgages . . . the beneficial ownership of which has been sold to various investors in the form of certificates representing their undivided ownership interest in the total pool." Ellington Credit Fund, Ltd. v. Select Portfolio Servicing, 2011 WL 6034310, at *1 (S.D.N.Y. Dec. 5, 2011). As trustee, plaintiff seeks summary judgment and a default judgment against defendants New York City Environmental Board, East Coast Petroleum, and June Siegel (as an individual and representative of the estate of Seymour Siegel), in order to foreclose on the mortgage and its security interest in certain collateral. See Pl. Mem. at 16.*fn4

The history of the loan in question is somewhat involved. 3301 Atlantic executed a promissory note with Arbor Commercial Mortgage on November 21, 2005. Pl. R. 56.1 Statement ¶ 1; 3301 Atlantic R. 56.1 Statement ¶ 1(a). At the same time, Ms. Apergis guaranteed the note, and 3301 Atlantic entered into two mortgages, which were consolidated into one, securing the note. Pl. R. 56.1 Statement ¶¶ 2-3. Plaintiff avers that, also on November 21, 2005, Arbor assigned the mortgage to Wachovia Bank, N.A, id. ¶ 5; the obligor defendants state that Arbor "allegedly" assigned the mortgage, although they do not argue in their motion to dismiss that this particular assignment was invalid. See 3301 Atlantic R. 56.1 Statement ¶ 1(b); 3301 Atlantic Mem. at 5-8.*fn5 The mortgage was in turn assigned by Wachovia to Wells Fargo as trustee for the REMIC trust on April 10, 2006. Pl. R. 56.1 Statement ¶ 6; 3301 Atlantic R. 56.1 Statement ¶¶ 1(c)-(d) (obligor defendants add that the assignment documents "were originally blank and undated" (emphasis in original)).

On January 10, 2008, Wells Fargo attempted to foreclose on the mortgage in Kings County Supreme Court. 3301 Atlantic R. 56.1 Statement ¶ 3. That action is currently stayed. Id. On September 19, 2008, the parties entered into a forbearance agreement. Id. ¶ 4. 3301 Atlantic filed for bankruptcy protection pursuant to Chapter 11 on January 14, 2009, resulting in a reorganization plan. Id. ¶ 6.

On March 31, 2009, Wells Fargo assigned or attempted to assign the mortgage to the plaintiff as trustee of the same trust. 3301 Atlantic R. 56.1 Statement ¶¶ 1(e), 5. The obligor defendants contest, among other things, the validity of the power of attorney authorizing the assignment. Pl. R. 56.1 Statement ¶ 7. Following the plaintiff's purported assumption of the role of trustee, on October 16, 2009, plaintiff and 3301 Atlantic modified the mortgage note and assignment. Pl. R. 56.1 Statement ¶ 8. Three days later, the parties amended the loan documents to provide for a new payment schedule for the outstanding balance. Id. ¶ 10; 3301 Atlantic R. 56.1 Statement ¶ 6. Plaintiff claims that the obligor defendants are in default on the mortgage and states that it holds the superior lien on the property it secures. Pl. R. 56.1 Statement ¶¶ 13, 19.

The other answering defendants, BRFI, Richard and Jeffrey Siegel, Blue Ridge Foods and Marvin Sussman, have a lawsuit pending against the obligor defendants in state court. Blue Ridge Farms, Inc., et al. v. Kontogiannis, et al., Index No. 23246/2008. Notices of pendency were filed in that case in May and June of 2010. BRFI R. 56.1 Statement ¶¶ 1, 3. Blue Ridge Farms ("BRFI") and the Siegels allege in their state court case that 3301 Atlantic and Ms. Apergis fraudulently acquired title to the property at issue in this action from them. Id. ¶ 6. They also have brought suit against defendant Blue Ridge Foods, which holds a lease on the property. Id. ¶¶ 7, 12-13.*fn6 As noted above, this case has been stayed as to Blue Ridge Foods due to that entity's pending bankruptcy case. See Court Order dated Apr. 20, 2012. BRFI has made a cross-motion in this case to ensure that any surplus funds that might result from a foreclosure sale be placed in escrow pending the resolution of the state court case. See Notice of Cross Motion, Docket Entry 47.

As noted above, 3301 Atlantic and Ms. Apergis now move to dismiss the case, Docket Entry 40, and the plaintiff moves for summary judgment against the answering defendants and entry of default judgments against those defendants who have not appeared, Docket Entry 44.


I.Obligor Defendants' Motion to Dismiss

a. Jurisdiction

Plaintiff invokes this Court's diversity jurisdiction. Amend. Compl. ¶ 13, Docket Entry 10. It is undisputed that plaintiff is the only party that is a citizen of North Carolina, where its main offices are located.*fn7 Id. ¶¶ 1-12. See also Wachovia Bank v. Schmidt, 546 U.S. 303, 307 (2006) (interpreting 28 U.S.C. § 1348 to provide that a national bank, such as plaintiff, is a "citizen of the State in which its main office, as set forth in its articles of association, is located" and not "additionally a citizen of every State in which it has established a branch"); Manufacturers & Traders Trust Co. v. HSBC, 564 F. Supp. 2d 261, 263 (S.D.N.Y. 2008) (applying this citizenship analysis in the case of a national banking association acting as a trustee). The obligor defendants nonetheless challenge jurisdiction by contending that whether complete diversity exists must be determined by reference to the citizenship of the trust's certificate holders rather than that of the trustee. 3301 Atlantic Mem. at 15.

The obligor defendants' argument is foreclosed by the Supreme Court's decision in Navarro Sav. Ass'n v. Lee, 446 U.S. 458 (1980). Navarro addresses the question of whether the citizenship of trustees or that of trust beneficiaries controls for diversity purposes. In answering this question, the Court looked to which entity or entities were the real parties in interest, and noted that Federal Rule of Civil Procedure 17(a) permits the trustee of an express trust to sue in its own name without joining the person for whose benefit the action is brought. See 446 U.S. at 462 (identifying the relevant issue in determining diversity where trustees of an express trust are parties to a suit as "whether [the] trustees are real parties to [the] controversy"). After reviewing the long history of Supreme Court precedent holding that individual trustees' citizenship, and not that of the trust beneficiaries, determines whether there is diversity, even when "the beneficiaries are many," id. at 463 (internal citations omitted), the Court reiterated the principle 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." Id. at 464. By contrast, trustees who are "'naked trustees' who act as 'mere conduits' for a remedy flowing to others" are not real parties in interest and their citizenship does not determine whether parties are diverse. Id. at 465 (quoting McNutt v. Bland, 43 U.S. 9, 13-14 (1844)).

Contrary to the defendants' assertion that courts in the Second Circuit have never resolved how the citizenship of a trust should be determined, see 3301 Atlantic Mem. at 16, the District Court for the Southern District of New York, as plaintiff notes, has applied Navarro when analyzing diversity jurisdiction over a suit brought by a REMIC trustee. See LaSalle Bank Nat'l Ass'n v. Normura Asset Capital Corp., 180 F. Supp. 2d 465, 470 (S.D.N.Y. 2001); see also Manufacturers & Traders Trust Co., 564 F. Supp. 2d at 263 (finding that the "citizenship of the trustee(s) of an indenture controls for diversity purposes, even if the note holders retain some control over the trustee(s)" (citing Navarro, 446 U.S. at 464-65)).

The obligor defendants contend that the Supreme Court's decision in Carden v. Arkoma Ass'ns, 494 U.S. 185 (1990), narrows the holding in Navarro and calls its application hereinto question. See 3301 Atlantic Mem. at 18. I disagree. Carden involved limited partnerships and not trustees.*fn8 Moreover, the majority decision in Carden assumes Navarro to be good law and distinguishes the issues it resolved from those presented in Carden. 494 U.S. at 191-92. Nothing in Carden narrows the holding in Navarro or otherwise suggests that it does not control the outcome of this case.

The remaining question under Navarro is whether Bank of America is the real party in interest. Like the trustees in Navarro who had "legal title . . . manage[d] the assets . . . [and] control[led] the litigation," 446 U.S. at 465, Bank of America appears to have significant control as trustee. The Pooling and Servicing Agreement (PSA), which governs the trust, states that the Depositor . . . does . . . assign, sell, transfer, set over and otherwise convey to the Trustee, in trust, without recourse, for the benefit of the Certificateholders . . . all the right, title, and interest of the Depositor, in, to and under (i) the Mortgage Loans and all documents included in the related Mortgage Files and Servicing Files, (ii) the rights of the Depositor under Sections 2,3, 9, 10, 11, 12, 13, 14, 16, 17, 18, and 19 of each of the Mortgage Loan Purchase Agreements, and (iii) all other assets included or to be included in the Trust Fund.

PSA § 2.01(a), Farley Aff., Ex. E at 34; see also PSA § 2.05 (conveying the mortgage loans to the trustee upon execution of the PSA).*fn9 Finally, it appears that the trustee is the entity contemplated to bring a suit; the certificateholders may not sue under the PSA unless the trustee has refused to do so. See PSA § 11.03(c);

It is true that, under PSA § 3.01, "[e]ach of the Master Servicer and the Special Servicer shall service and administer the Mortgage Loans and Companion Loans that each is obligated to service and administer pursuant to [the PSA] on behalf of the Trustee, for the benefit of the Certificateholders." However, as noted by the plaintiff, a similar delegation of administrative control was found not to preclude a trustee's status as a real party in interest.*fn10 See LaSalle, 180 F. Supp. 2d at 470 (where servicer had the power "to take certain actions with regard to servicing loans that are in or near default," it was nonetheless not the real party in interest because it was still obligated to provide information to the trustee about its actions and the trustee retained title to the mortgages); see also Wells Fargo Bank v. Konover, 2009 WL 2710229, at *3-4 (D. Conn. Aug. 21, 2009) (discussing a PSA similar to the one in LaSalle and finding that "because . . . the Trustee has legal title and the power to manage the assets and initiate litigation . . . which delegation to [a servicer] does not negate, its own citizenship forms the basis of diversity jurisdiction independent of the citizenship of individual Certificateholders"). There is, moreover, no indication that the certificateholders, rather than Bank of America, have control over this litigation; defendants' allegations in this regard seem to be merely conclusory. See 3301 Atlantic Mem. at 19-20.

I therefore conclude that Bank of America is a real party in interest and, under Navarro, is appropriately viewed as a North Carolina citizen. As such, there is complete ...

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