Wilmington Trust, National Association v. Aevri Salina Meadows LLC

Background

Aevri Salina Meadows LLC borrowed $25 million from the Bank of Montreal and secured the loan with a mortgage on the Salina Meadows Office Park in Syracuse, New York, along with a security interest in leases and rents from the property. Moshe Rothman personally guaranteed repayment. The Bank of Montreal later assigned the loan and related agreements to Wilmington Trust, National Association, as trustee for the benefit of certificateholders in the BBCMS Mortgage Trust 2022-C15 Commercial Mortgage Pass-Through Certificates, Series 2022-C15.

The trust agreement gave Wilmington Trust legal title to the trust’s assets and authority to manage them and sue on the trust’s behalf. Rialto Capital Advisors, LLC was the trust’s special servicer. Its responsibilities included administering defaulted loans and, as authorized by Wilmington Trust, initiating legal proceedings. The agreement described the special servicer as an independent contractor and allowed Wilmington Trust to assume its duties if Rialto was terminated.

After Rialto notified Aevri of loan defaults, Wilmington Trust accelerated the loan and demanded payment. Wilmington Trust then filed this action seeking foreclosure and judgment on Rothman’s guaranty. The defendants moved to dismiss under Federal Rule of Civil Procedure 12(b)(1), which permits dismissal when a federal court lacks authority to hear a case. They argued that the complaint failed to establish diversity jurisdiction because it did not plead the citizenship of the trust’s beneficiaries or Rialto.

Diversity Jurisdiction

Diversity jurisdiction under 28 U.S.C. § 1332(a) generally requires complete diversity between the opposing parties and an amount in controversy exceeding $75,000. The complaint alleged that Wilmington Trust was a Delaware citizen, that the defendants were citizens of New York and New Jersey, and that the amount in controversy exceeded $75,000. The defendants did not dispute those allegations. The issue was whether the citizenship of the trust’s beneficiaries or Rialto also had to be included.

The court applied the rule that a trustee who sues in its own name is the real party to the controversy for diversity purposes when it has customary powers to hold, manage, and dispose of assets for others. The court found that Wilmington Trust had those powers. The trust agreement transferred the trust assets to Wilmington Trust, gave it authority to sue, and allowed it to control the litigation. The court therefore treated Wilmington Trust as an active trustee and concluded that its own Delaware citizenship controlled the plaintiff-side diversity analysis.

The court rejected the defendants’ reliance on the rule that certain business trusts take the citizenship of all their members. It explained that this rule applies to an entity that has its own legal identity and can sue or be sued in its own name. The court found that this trust was a New York common-law trust, and under New York law such a trust was not a separate legal person that could sue or be sued in its own name. The court therefore did not need to determine the citizenship of the certificateholders.

The court also concluded that Rialto was not an additional real and substantial party to the controversy. Rialto acted as Wilmington Trust’s representative, did not hold legal title to the trust assets, and did not have its own stake in the litigation apart from its duties under the trust agreement. Although the complaint alleged that a small portion of Aevri’s unpaid balance consisted of special-servicer fees, the requested damages were payable to Wilmington Trust, not Rialto. Rialto’s citizenship therefore did not have to be pleaded for diversity purposes.

Disposition

The court concluded that Wilmington Trust’s Delaware citizenship alone determined the plaintiff-side citizenship, that complete diversity existed, and that the amount in controversy exceeded $75,000. Judge John P. Cronan denied the defendants’ motion to dismiss and directed the Clerk of Court to terminate the motion at Docket Number 44.