PFSS 2020 Holding Company, LLC v. Findlay Estates LLC

Background

Greystone Servicing Company LLC originated a $6,335,000 mortgage loan for Findlay Estates, LLC, secured by property identified in the complaint as 1056, 1060, and 1064 Findlay Avenue in the Bronx, New York. Greystone assigned the loan to Federal Home Loan Mortgage Corporation, commonly called Freddie Mac, on January 14, 2019. Greystone continued servicing the loan and had agreed to repurchase it if certain defaults occurred.

After alleged defaults in 2020, Freddie Mac filed a mortgage-foreclosure complaint on October 23, 2020. At that time, Freddie Mac held all rights to the loan. On November 12, 2020, Greystone repurchased the loan. Freddie Mac later moved to substitute Greystone as the plaintiff, and Greystone later sold the loan to PFSS 2020 Holding Co., LLC. The court stated that it would address the substitution motions separately.

The motion to dismiss

Findlay Estates and Sheindy Grunhut moved under Federal Rule of Civil Procedure 12(b)(1), which allows dismissal when a federal court lacks power to hear a case. They argued that Freddie Mac and Greystone had colluded to create federal jurisdiction improperly. They relied on possible diversity jurisdiction and on Freddie Mac’s federal jurisdiction statute, 12 U.S.C. § 1452(f).

The court noted that Freddie Mac did not rely on diversity jurisdiction. Instead, Freddie Mac argued that § 1452(f) gave federal courts original jurisdiction over civil cases in which Freddie Mac was a party. The court agreed that Freddie Mac’s filing of the lawsuit gave the court jurisdiction when the case began.

Court’s analysis

The court held that the later transfers did not eliminate jurisdiction. It relied on a Second Circuit decision involving the Federal Deposit Insurance Corporation, which stated that jurisdiction ordinarily depends on the facts when the complaint is filed. The court also reasoned that a rule eliminating jurisdiction whenever a federal entity transferred its interest could discourage ordinary business transactions during litigation.

The court separately considered the defendants’ claim that the transfers were collusive under 18 U.S.C. § 1359. Assuming that section applied, the court found that Freddie Mac had shown, by a preponderance of the evidence, that the transfers were not collusive. It found no corporate relationship between Freddie Mac and Greystone that would justify presuming collusion. It also found that the assignments were consistent with Freddie Mac’s multifamily mortgage program, that the later transfer resulted from Greystone’s contractual repurchase obligation, and that Freddie Mac did not appear to retain control of the litigation after the assignments.

Disposition

The court held that it had subject matter jurisdiction when Freddie Mac filed the complaint and that the jurisdiction remained in place after the loan moved from Freddie Mac to Greystone and then to PFSS. The court denied Findlay Estates’ and Sheindy Grunhut’s motion to dismiss and directed the clerk to terminate the motion at docket 29.