Wells Fargo Bank v. 700 Milford Holdings LLC

Background

Wells Fargo Bank, National Association, sued as trustee of the Morgan Stanley Bank of America Merrill Lynch Trust 2013-C9. The action sought to foreclose on a first-priority mortgage securing a $275 million loan to 700 Milford Holdings LLC. Wells Fargo alleged that 700 Milford Holdings failed to make required interest payments from May 5, 2020, through July 5, 2021. The complaint also named David Werner, alleged to be a loan guarantor, and two limited partnerships identified as the tenant and subtenant of the property. Wells Fargo sought to extinguish the two partnerships’ interests in the property through the foreclosure.

Wells Fargo relied only on diversity jurisdiction under 28 U.S.C. § 1332. It alleged that Wells Fargo and the trust were citizens of South Dakota and that the tenant and subtenant were diverse from them. Because limited partnerships have the citizenship of each general and limited partner, the court examined the ownership structure of the two partnerships.

Jurisdictional dispute

700 Milford Holdings moved to dismiss for lack of subject-matter jurisdiction. It submitted financial reports showing that public employee pension funds of Pennsylvania, Oregon, New Hampshire, and Florida had invested in Rockpoint Real Estate Fund III, LP. The ownership information showed that Rockpoint Fund III’s citizenship flowed through several limited partnerships and limited liability companies to the two tenant and subtenant partnerships.

Wells Fargo initially argued that Rockpoint Fund III’s investors were individuals and relied on the tenant and subtenant partnerships’ Local Rule 26.1 statement. The partnerships later revised that statement to disclose that one or more pension funds were among Rockpoint Fund III’s ultimate investors. Wells Fargo did not rebut 700 Milford Holdings’s evidence that the four state pension funds had invested in Rockpoint Fund III.

Court’s analysis

For diversity jurisdiction, an unincorporated association has the citizenship of all its members, and a limited partnership has the citizenship of all its general and limited partners. The court therefore concluded that Rockpoint Fund III bore the citizenship of the four pension funds. The court further assumed, for purposes of the motion, that the funds were “arms of the state”—entities treated as not being citizens of any state—because Wells Fargo did not argue otherwise or provide evidence establishing their diverse citizenship.

Because Rockpoint Fund III included members that were not citizens of any state or foreign country, the court concluded that Rockpoint Fund III could not be diverse. The tenant and subtenant partnerships likewise carried that lack of diverse citizenship through their ownership chains. The court rejected Wells Fargo’s argument that the pension funds could not defeat diversity because they were not named parties, explaining that the citizenship of the named limited partnerships depended on the citizenship of their partners or members, including passive investors.

Disposition

The court held that Wells Fargo had not established subject-matter jurisdiction by a preponderance of the evidence. It did not reach the defendants’ alternative grounds for dismissal. Judge John P. Cronan granted 700 Milford Holdings’s motion to dismiss for lack of subject-matter jurisdiction and dismissed the action without prejudice. The Clerk was directed to close the pending motions, close the case, and enter judgment.