United States District Court, N.D. California
ORDER RE: PLAINTIFF'S MOTION TO APPOINT RECEIVER Re: Dkt. No. 28
JACQUELINE SCOTT CORLEY, Magistrate Judge
Plaintiff LPP Mortgage LTD brings this judicial foreclosure action against Defendant Ondyn Herschelle alleging breach of a Deed of Trust which was assigned to Plaintiff in 2001. Now pending before the Court is Plaintiff's Motion to Appoint a Receiver (Dkt. No. 28.) Having considered the parties' submissions and having had the benefit of oral argument on July 17, 2014, the Court DENIES Plaintiff's motion.
On June 25, 1990, Defendant Ondyn Herschelle executed a Note in favor of the Small Business Administration ("SBA") in the principal amount of $408, 600. (Dkt. No. 23 ¶ 7; Dkt. No. 23-1.) Repayment of this Note was secured by a Deed of Trust dated August 10, 1990 encumbering a fee estate in real property at 989 Folsom Street, San Francisco, California (the "Subject Property"). ( Id. ¶ 9.) The Deed of Trust was recorded as Instrument No. E764816 in the Official Records of the San Francisco County Recorder's Office on August 16, 1990. (Dkt. No. 23-3.) That same day, another Deed of Trust listing Defendant Cranberry Financial, LLC ("Cranberry") as the trustee was recorded as Instrument No. E764817 encumbering the same Subject Property (hereinafter "Junior Deed of Trust"). (Dkt. No. 23 ¶ 20.)
Four years later, the SBA executed a letter agreement whereby the principal amount of the Note was increased to $500, 000. ( Id. ¶ 8.) A Deed of Trust Amendment reflecting this modification was recorded on September 15, 1994. ( Id. ¶ 10; Dkt. No. 23-4.)
In 2000, the SBA endorsed the Note to Plaintiff, and in 2001, the Deed of Trust was likewise assigned to Plaintiff. ( Id. ¶¶ 11-12; Dkt. Nos. 23-4 & 23-5.)
Plaintiff filed the underlying judicial foreclosure action alleging that Defendant Herschelle is in material breach of the Note and Deed of Trust by (1) failing to make monthly payments under the Note since December 2012, (2) failing to pay property taxes, and (3) failing to maintain fire insurance on the Subject Property. ( Id. ¶ 16.) Defendant Cranberry, alleged to be a junior lienholder, failed to respond to the summons and complaint and default was entered against it on June 3, 2014. (Dkt. No. 30.)
After the operative Second Amended Complaint ("SAC") was filed and before Defendant Herschelle had filed an answer, Plaintiff filed the now pending Motion to Appoint Receiver (Dkt. No. 28). Plaintiff seeks appointment of a receiver to take possession of the property pursuant to language in the Deed of Trust which authorizes appointment of a receiver upon the trustor's default of her obligations under the Note or Deed of Trust. (Dkt. No. 28-3 § B(5).) Herschelle offers evidence that since the motion was filed she paid the back property taxes and obtained fire insurance. (Dkt. No. 34-1 ¶¶ 3-4.)
A. Adequacy of the Allegations as to Defendant Cranberry
As an initial matter, although not raised by either party, the Court must address the status of Cranberry as a defaulted defendant. Plaintiff alleges that subject matter jurisdiction in this case arises under 28 U.S.C. § 1332 which vests federal courts with original jurisdiction over "all civil actions where the matter in controversy exceeds the sum or value of $75, 000... and is between citizens of different states." Diversity exists between Plaintiff, a limited partnership composed of a Texas corporation and a Nevada corporation, and Defendant Herschelle, a resident of California, and there is no question that the amount in controversy requirement is satisfied. The question then is the citizenship of Defendant Cranberry. The SAC alleges that Cranberry is a limited liability company ("LLC") organized under the laws of Delaware with its principal place of business in Minnesota. (Dkt. No. 23 ¶ 3.) As an LLC, Cranberry "is a citizen of every state of which its owners/members are citizens." Johnson v. Columbia Props. Anchorage, LP, 437 F.3d 894, 899 (9th Cir. 2006). The SAC's allegations with respect to Cranberry's citizenship are, however, insufficient to allow the Court to determine the citizenship of all of Cranberry's members. Id .; But see Carolina Cas. Ins. Co. v. Team Equip., Inc., 741 F.3d. 1082, 1086 (9th Cir. 2014) (holding that where the information necessary to establish diversity of citizenship is not reasonably available, the court should permit plaintiff to plead its jurisdictional allegations as to those defendants on information and belief and without affirmatively asserting those defendants' citizenship.)
If Defendant Cranberry is a nominal defendant, however, then its citizenship is ignored for purposes of diversity. See Kuntz v. Lamar Corp., 385 F.3d 1177, 1183 (9th Cir. 2004) ("[a] federal court must disregard nominal or formal parties and rest jurisdiction only upon the citizenship of real parties to the controversy."). A nominal party is one "who has no interest in the action" and is merely joined to "perform a ministerial act." Prudential Real Estate Affiliates, Inc. v. PPR Realty, Inc., 204 F.3d 867, 873 (9th Cir. 2000). "The paradigmatic nominal defendant is a trustee, agent, or depositary... who is joined purely as a means of facilitating collection." S.E.C. v. Colello, 139 F.3d 674, 676 (9th Cir. 1998) (internal quotation marks and citation omitted). (internal quotation marks and citation omitted). Indeed, a nominal defendant has no legitimate claim to the disputed property such that he is not a real party in interest. Id. Thus, "there is no claim against him and it is unnecessary to obtain subject matter jurisdiction over him once jurisdiction of the defendant is established." Id. Courts often conclude that a trustee under a deed of trust is a nominal party except where the complaint includes substantive allegations and asserts claims for monetary damages against the trustee. See, e.g., Silva v. Wells Fargo Bank NA, 2011 WL 2437514, at *5 (C.D. Cal. June 6, 2011) (trustee defendant not a nominal defendant where the plaintiffs assert in their complaint claims against all defendants for money damages, including damages to their credit rating and home value, and emotional and physical distress); Couture v. Wells Fargo Bank, N.A., 2011 WL 3489955, at *3 (S.D.Cal. Aug. 9, 2011) (trustee defendant not a nominal defendant where the plaintiff's complaint contains substantive allegations and claims for money damages against trustee defendant).
Here, there are no substantive allegations with respect to Defendant Cranberry; rather, the only allegation is that Cranberry is a junior lienholder. As such, Cranberry is a nominal defendant and regardless of its citizenship cannot defeat diversity jurisdiction here. Further, the Court ...