Joan Demarest v. HSBC Bank USA
920 F.3d 1223
9th Cir.2019Background
- Demarest sued in California state court after foreclosure of her 2005 home loan that had been securitized into the "Nomura Home Equity Loan, Inc., Asset-Backed Certificates, Series 2006-HE2" trust. HSBC was alleged to be trustee.
- Defendants removed to federal court asserting diversity jurisdiction; removal asserted HSBC (a national bank with main office in McLean, Virginia) was a Virginia citizen.
- District court granted summary judgment for defendants; Demarest did not challenge the merits on appeal but raised, for the first time, lack of subject-matter jurisdiction.
- Central legal question: whether the citizenship of the Trust’s beneficiaries (investors) — rather than the trustee (HSBC) — must be considered for diversity after the Supreme Court’s decision in Americold.
- The Trust’s Pooling and Servicing Agreement identified it as a "common law trust" governed by New York law, vested legal title in the trustee, and authorized the trustee to sue in its own name.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether federal diversity jurisdiction existed given the Trust structure | Demarest: Americold requires treating the trust as an unincorporated entity whose members (investors) determine citizenship, so complete diversity may be lacking | Defendants: HSBC was sued in its own name as trustee of a traditional trust; under Navarro and Ninth Circuit precedent the trustee's citizenship controls | Held: Trustee's citizenship controls here; complete diversity existed and federal jurisdiction proper |
Key Cases Cited
- Navarro Savings Ass'n v. Lee, 446 U.S. 458 (Sup. Ct. 1980) (trustee with customary powers is a real party in interest; trustee's citizenship can control for diversity)
- Carden v. Arkoma Assocs., 494 U.S. 185 (Sup. Ct. 1990) (entity citizenship depends on the citizenship of all members for certain unincorporated entities)
- Americold Realty Tr. v. ConAgra Foods, Inc., 136 S. Ct. 1012 (Sup. Ct. 2016) (distinguishes traditional trusts from unincorporated business trusts; unincorporated entities take citizenship of their members)
- Johnson v. Columbia Props. Anchorage, LP, 437 F.3d 894 (9th Cir. 2006) (Ninth Circuit rule that a trust has the citizenship of its trustee)