© 2017 The Texas Lawbook.
By Christopher L. Chauvin of Thompson & Knight
(April 26) – In March 2016, the trial team from Thompson & Knight’s Real Estate Capital Markets Group released a Client Alert evaluating the United States Supreme Court’s decision in Americold Realty Trust v. Conagra Foods, Incorporated as follows:
[T]he Court held that when a trustee sues or gets sued in its own name (as trustee), the trustee’s citizenship is considered, not all of the trust’s beneficiaries. But where a trust sues or gets sued, and that trust is not a traditional trust—meaning it is a trust that may operate and sue or be sued in its own name, as Americold did—all trust beneficiaries must be diverse for diversity jurisdiction to exist.
[Commercial mortgage-backed security] trusts or similar trusts that specifically (and irrevocably) allocate exclusive authority to the trustee to act on the trust’s behalf, including the authority to bring and defend against lawsuits, should argue that their trustee’s citizenship governs the diversity analysis under the traditional trust principals set forth in Americold.
Thus, so long as a CMBS trust’s formation documents mandate that it act through its trustee like a traditional trust, Americold directs federal courts to look to the citizenship of the trustee.
Nevertheless, after Americold, litigants opposing CMBS trusts in federal court immediately began filing motions to dismiss for lack of subject matter jurisdiction. Confusion ensued. Some CMBS trusts were forced to litigate in state court. Others lived to fight another day at the federal courthouse.
In a case litigated by Thompson & Knight, the United States Court of Appeals for the Fifth Circuit helped clarify things on Feb. 3, 2017. In Hometown 2006-1 1925 Valley View, LLC v. Prime Income Asset Management, LLC et al., the Fifth Circuit accepted the Thompson & Knight team’s view of Americold by ruling that, for a CMBS trust (which the court agreed was a “traditional trust”), the citizenship of the trustee is all that matters for diversity purposes. Indeed, writing for a unanimous three-judge panel, Judge Patrick E. Higginbotham wrote:
There is no dispute that U.S. Bank is a national bank with citizenship in Ohio. Defendants argue that our inquiry does not stop there; citing to Americold Realty Trust v. Conagra Foods, Inc., Defendants reason that since U.S. Bank in its capacity as a trustee is the sole member of Hometown, the citizenship of the “members” of that trust ought be accounted for. We disagree. Americold involved a Maryland Real Estate Investment Trust, nominally a trust but in reality an unincorporated business entity recognized by statute. For traditional trusts, the Americold court held that “when a trustee files a lawsuit or is sued in her own name, her citizenship is all that matters for diversity purposes.” We need look no further than U.S. Bank’s citizenship to conclude that Hometown is a citizen of Ohio.
In summary, a CMBS trust still has access to federal court, even after Americold, so long as the CMBS trust’s formation documents mandate that it act through its trustee like a traditional trust.
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