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50 A LOOK AT SECURITIZED TRUSTS AND DIVERSITY JURISDICTION By Emilie K. Edling In a good news ruling for Investors in mortgage real estate trusts, the Ninth Circuit Court of Appeals has published a decision which allows securitized trusts to stay in federal court based on diversity jurisdiction. The Court rejected an argument that would have jeopardized the ability of investment trusts to ever remove a lawsuit to federal court on diversity jurisdiction grounds. (See Demarest v. HSBC Bank US A, N.A. as Tr. for registered holders of Nomura Home Equity Loan, Inc., Asset-Backed Certif icates, Series 2006-HE2, No. 17-56432, 2019 WL 1510430 (9th Cir. Apr. 8, 2019)). Federal Courts are preferred for those with mortgage investment interests for a number of reasons, such as locale, court processes, eff iciency, and quality. The Demarest case involved a borrower, Joan Demarest, who initiated several suits to stall foreclosure on property securing her loan after she defaulted on her loan. Demarest f iled her latest suit against "HSBC Bank USA, N.A.," the entity serving as trustee for an investment trust (the "Trust") to which Demarest's note and deed of trust had been transferred. The defendant in the suit removed the case to federal court, identifying itself as "HSBC Bank USA, N.A., as Trustee for the Registered Holders of Nomura Home Equity Loan, Inc., Asset-Backed Certif icates, Series 2006-HE2," providing the full name of the Trust. The Trust's removal notice advised that removal was proper based on diversity jurisdiction because Demarest was a California citizen and HSBC was a national banking association considered a citizen of Virginia for diversity jurisdiction purposes. Demarest did not challenge the removal during the trial court proceedings. However, when the Trust later prevailed on summary judgment, Demarest appealed, asserting for the f irst time that an investment trust could only establish diversity jurisdiction by showing that the citizenship of all of its benef iciaries—not just its trustee—was diverse from the plaintiff. Although the Ninth Circuit has ruled for decades that a trust's citizenship is that of its trustee, Demarest argued that this precedent had been overturned three years ago, when the U.S. Supreme Court considered the case, Americold Realty Trust v. Conagra Foods, Inc., 136 S. Ct. 1012 (2016). In Americold, the Supreme Court was asked to determine whether diversity jurisdiction existed in a case involving an unincorporated real estate investment trust created under Maryland law, which had brought suit in its own name, as it was authorized to do pursuant to Maryland statute. The Americold Court concluded that the Maryland trust's citizenship for diversity jurisdiction purposes was that of the trust's members rather than its trustees, likening the Maryland trust to a limited partnership or joint-stock company, artif icial entities whose citizenship is determined by its members or shareholders. Id. at 1016-1017. Since Americold, courts determining the citizenship of a trust for purposes of assessing diversity jurisdiction have applied different tests, but typically consider both the identity of the party actually named in the suit, as well as evaluate the type of trust involved. See, e.g., Bynane v. Bank of New York Mellon for CW MBS, Inc.

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