Citibank, N.A v. Hello Flatbush LLC

Background

Cantor Commercial Real Estate Lending, L.P. made a $15,000,000 commercial mortgage loan to Hello Flatbush LLC on or about February 28, 2020. Eli Karp guaranteed the loan. In April 2020, Cantor assigned the mortgage and related documents to the CF Trust. Citibank, N.A. serves as trustee for that trust.

Hello Flatbush and Karp, acting as guarantor, stopped making the required monthly payments beginning in September 2023. Citibank then brought a foreclosure action against them. Citibank attempted to personally serve Karp six times over about a month at Hello Flatbush’s principal place of business and at Karp’s New York home. Citibank later served him by affixing the summons to his home’s door and sending a copy by first-class mail.

Karp moved to dismiss for lack of subject-matter jurisdiction, lack of standing, and insufficient service of process.

Subject-Matter Jurisdiction

The court held that diversity jurisdiction was proper under 28 U.S.C. § 1332. That statute allows federal courts to hear civil cases involving more than $75,000 between citizens of different states.

Karp argued that Citibank was not shown to be the proper plaintiff because Citibank had not initially submitted the CF Trust’s governing agreement. He also argued that the citizenship of the trust’s beneficiaries mattered and had not been alleged.

The court explained that the citizenship analysis depends on whether a trust is a traditional trust or a business trust. Citibank stated that the CF Trust had elected to be treated as a real estate mortgage investment conduit under the Internal Revenue Code, and Karp did not dispute that characterization. For a traditional trust, the relevant citizenship is that of the trustees who hold the legal right to sue, rather than that of the beneficiaries.

The trust agreement showed that Citibank, as trustee, had the legal right to sue. Because Citibank is a national bank, its citizenship is determined by the state where its main office is located. The court found that Citibank was a citizen of South Dakota and that neither Hello Flatbush nor Karp was a citizen of South Dakota. The court therefore concluded that diversity jurisdiction was proper.

Standing to Bring the Foreclosure Action

Karp argued that Citibank did not hold the note and mortgage when it filed the action. The court distinguished this issue from constitutional standing, explaining that the issue instead concerned whether Citibank satisfied New York law’s requirements for pursuing a foreclosure.

Under the cited New York law, a plaintiff must be the holder or assignee of both the mortgage and the underlying note when the action begins. The court found that Citibank had alleged and produced documents showing that Citibank, in its capacity as trustee, was assigned the mortgage and note before the action was filed. For purposes of the motion to dismiss, the court held that Citibank had adequately pleaded that it met the conditions required to pursue the foreclosure.

Service of Process

Karp argued that service was improper because Citibank served him by first-class mail. Federal Rule of Civil Procedure 4 permits service under the law of the state where the federal court is located or where service occurs. Under the New York provision cited by the court, a plaintiff may affix the summons to the door of a person’s home or place of business and mail the summons when personal service cannot be completed with due diligence.

The court held that Citibank had exercised sufficient due diligence. Citibank made six attempts over more than three weeks, at three separate addresses, including Karp’s office and home. The attempts occurred on nonconsecutive days and at different times of day. The court also rejected Karp’s argument that Citibank was required to serve him at his place of employment, explaining that the cited authority imposed that requirement only when service attempts were not sufficiently varied in time.

Disposition

The court denied Karp’s motion to dismiss. The Clerk of Court was directed to terminate the motion at docket entry 71.