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LLC v. 1145 Clay Ave. Owner, LLC

United States District Court, S.D. New York

July 30, 2013

WBCMT 2007-C33 N.Y. LIVING, LLC, Plaintiff,
v.
1145 CLAY AVENUE OWNER, LLC et al., Defendants

Page 266

For Plaintiff: Gregg L Weiner, Esq., Jesse Loffler, Esq., Michael Mandelstam, Esq., Fried, Frank, Harris, Shriver & Jacobson, New York, NY.

For the Borrower Defendants: Jacob S. Pultman, Esq., Bradley S. Pensyl, Esq., Allen & Overy, LLP, New York, NY.

OPINION

Page 267

MEMORANDUM & ORDER

WILLIAM H. PAULEY III, District Judge.

Plaintiff WBCMT 2007-C33 N.Y. Living, LLC brings this diversity action to foreclose on a $133 million mortgage against thirty-six LLCs (" Borrower Defendants" ); a guarantor, David Kramer; and nine creditors who may possess security interests in the mortgage. The mortgaged properties include forty multi-family residential properties in New York. The Borrower Defendants move to dismiss for lack of subject matter jurisdiction. For the following reasons, their motion is denied.

DISCUSSION

Under Rule 12(b)(1) of the Federal Rules of Civil Procedure, an action must be dismissed if the court lacks subject matter jurisdiction. A plaintiff asserting subject matter jurisdiction has the burden of proving by a preponderance of the evidence that subject matter jurisdiction exists. Makarova v. United States, 201 F.3d 110, 113 (2d Cir. 2000). When considering a motion under Rule 12(b)(1), courts " accept as true all material facts alleged in the complaint and draw all reasonable inference in the plaintiff's favor." Sharkey v. Quarantillo, 541 F.3d 75, 83 (2d Cir. 2008) (citation omitted).

Federal courts have diversity jurisdiction over controversies between " citizens of different States." Oscar Gruss & Son, Inc. v. Hollander, 337 F.3d 186, 193 (2d Cir. 2003). " [D]iversity jurisdiction is available only when all adverse parties to a litigation are completely diverse in their citizenships." Herrick Co., Inc. v. SCS Communications, Inc., 251 F.3d 315, 322 (2d Cir. 2001). In addition, those citizens " must be real and substantial parties to the controversy." Navarro Sav. Ass'n. v. Lee, 446 U.S. 458, 460, 100 S.Ct. 1779, 64 L.Ed.2d 425 (1980). " [A] plaintiff who sues not only as agent, but also as an individual who has his own stake in the litigation" meets this requirement. Oscar Gruss, 337 F.3d at 194.

I. Diverse Citizenship

The rules regarding the citizenship of artificial entities are easy to articulate but difficult to administer. An LLC has the citizenship of all its members. See Carden v. Arkoma Assocs.., 494 U.S. 185, 195, 110 S.Ct. 1015, 108 L.Ed.2d 157 (1990); Handelsman v. Bedford Vill. Assocs. Ltd. P'ship, 213 F.3d 48, 51-52 (2d Cir. 2000). A trust has the citizenship of both its trustees and beneficiaries. Mills 2011 LLC v. Synovus Bank, No. 12 Civ. 6158, 921 F.Supp.2d 219, 2013 WL 443541, at *5 (S.D.N.Y. Feb. 5, 2013). Trustees may, however, sue " in their own right, without regard to the citizenship of the trust beneficiaries." Navarro, 446 U.S. at 465-66; Universitas Educ., LLC v. Nova Grp., Inc., No. 12-3504, 513 Fed.Appx. 62, 2013 WL 781100, at *1 (2d Cir. Mar. 4, 2013) (Summary Order).

The parties dispute the membership of WBCMT. WBCMT alleges that its sole member is U.S. Bank National Association, as a trustee. The Borrower Defendants challenge that and also argue that when an LLC names a trustee as a member, courts must also look to the citizenship of the trust beneficiaries to determine the LLC's citizenship. This argument raises an unsettled question of law: When an LLC--whose sole member is a trustee--brings an action on the basis of diversity jurisdiction, whose citizenship matters?

WBCMT is part of a constellation of artificial entities. U.S. Bancorp, Inc. owns U.S. Bank. U.S. Bank is an Ohio-based ...


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