Nomura Asset Acceptance Corp. Alternative Loan Trust, Series 2007-1 ex rel. HSBC Bank USA, N.A. v. Nomura Credit & Capital, Inc.
27 F. Supp. 3d 487
S.D.N.Y.2014Background
- Nomura created the Nomura Asset Acceptance Corp. Alt. Loan Trust, Series 2007-1 (the Trust) under a New York-law PSA; HSBC is trustee and a pool of residential mortgages collateralized certificates purchased by investors including AIG.
- Nomura (defendant/sponsor) made representations and warranties about loan quality and promised to repurchase defective loans; the Trust (plaintiff) alleges misrepresentation and failure to repurchase defective loans.
- Plaintiff sued Nomura in federal court asserting diversity jurisdiction; defendant moved to dismiss under Fed. R. Civ. P. 12(b)(1) (lack of subject-matter jurisdiction) and 12(b)(6).
- Central jurisdictional question: how to determine the citizenship of a trust for diversity purposes — whether to consider the trustee’s citizenship, the beneficiaries’ citizenship, or some combination.
- The complaint is captioned in the Trust’s name “by HSBC Bank USA, N.A., in its capacity as trustee,” and the Court treated the plaintiff as the Trust (not HSBC individually).
- One beneficiary (AIG) is a Delaware corporation with principal place of business in New York; the Court concluded the Trust is a New York citizen and diversity is defeated.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Citizenship rule for trusts in diversity jurisdiction | The Trust (plaintiff) is the plaintiff; jurisdiction should be assessed without necessarily imputing beneficiaries’ citizenship | Jurisdiction should be determined by trustee’s citizenship (HSBC) or otherwise not defeated by beneficiaries like AIG | Where suit is in the name of the trust, look to beneficiaries’ citizenship; because AIG is NY citizen, diversity fails |
| Effect of Navarro v. Lee on trust citizenship | Navarro allows trustee’s citizenship to control | Navarro should not apply where the trust (not trustee individually) sues | Navarro controls only when trustees sue in their own names; not dispositive here |
| Applicability of Carden v. Arkoma Associates to trusts | Trust argues beneficiaries’ citizenship matters under Carden | Defendant urged trustee-centered approach, downplaying Carden | Carden applies to trusts: unincorporated entities take citizenship of their members/beneficiaries |
| Whether case should be dismissed or decided on merits | Plaintiff sought to proceed on merits | Defendant sought dismissal for lack of jurisdiction | Court dismissed without prejudice for lack of subject-matter jurisdiction |
Key Cases Cited
- Carden v. Arkoma Assocs., 494 U.S. 185 (holds unincorporated associations’ citizenship is that of their members)
- Navarro Sav. Ass’n v. Lee, 446 U.S. 458 (trustees suing in their own names may base citizenship on trustees when trustees have customary control)
- Emerald Investors v. Gaunt Parsippany Partners, 492 F.3d 192 (3d Cir.) (reasoned that beneficiaries’ citizenship can determine trust citizenship)
- Mills 2011 LLC v. Synovus Bank, 921 F. Supp. 2d 219 (S.D.N.Y.) (discusses split in authority and analyzes trustee vs beneficiary approaches)
- Catskill Dev., L.L.C. v. Park Place Entmt. Corp., 547 F.3d 115 (2d Cir.) (did not resolve the trust-citizenship question)