United States District Court, W.D. Washington
SECOND ORDER TO SHOW CAUSE REGARDING SUBJECT MATTER
L. ROBART United States District Judge.
the court is Defendant U.S. Bank NA, as successor trustee to
Bank of America NA, as successor in interest to LaSalle Bank
NA, as trustee for Washington Mutual Mortgage Pass-Through
Certificate WMALT Series 2006-AR4's (“the
Trust”) timely response to the court's order to
show cause regarding subject matter jurisdiction. (OSC Resp.
(Dkt. # 10); see also OSC (Dkt. # 9).) The court has
reviewed the Trust's response to the court's order to
show cause and supporting documentation (see
McEllrath Decl. (Dkt. # 11)) and concludes that the Trust has
failed to establish that the court has subject matter
jurisdiction over this action.
Ninth Circuit “strictly constue[s] the removal statue
against removal jurisdiction, ” and “[f]ederal
jurisdiction must be rejected if there is any doubt as to the
right of removal in the first instance.” Gaus v.
Miles, Inc., 980 F.2d 564, 566 (9th Cir. 1992).
“The ‘strong presumption' against removal
jurisdiction means that the defendant always has the burden
of establishing that removal is proper.” Id.
If a federal court determines that it lacks subject matter
jurisdiction at any time during a dispute, the court must
dismiss the action. See Fed. R. Civ. P. 12(h)(3);
Hertz Corp. v. Friend, 559 U.S. 77, 94 (2010)
(“Courts have an independent obligation to determine
whether subject-matter jurisdiction exists, even when no
party challenges it.”); Rosales v. United
States, 824 F.2d 799, 803 n.4 (9th Cir. 1987).
order to show cause, the court stated that it was uncertain
that diversity jurisdiction existed because the court could
not determine the citizenship of Defendant Residential
Funding Company, LLC (“Residential Funding”) from
the Trust's notice of removal. (OSC at 4-5.) Further,
although the Trust implied that the court should discount the
citizenship of Residential Funding because it is allegedly
inactive and bankrupt, the Trust failed to provide the court
with any legal authority for doing so. (Id. at 3,
5.) To the contrary, the court cited multiple authorities
indicating that a court must consider the citizenship of a
bankrupt defendant when determining the existence of
diversity jurisdiction. (See Id. at 3-4 (citing
response, the Trust did not provide the court with the
citizenship of all of Residential Funding's members or
provide the court with any legal authority to justify
disregarding Residential Funding's citizenship. (See
generally OSC Resp.) Instead, the Trust informed the
court that, pursuant to Residential Funding's bankruptcy
or liquidation plan, all of its assets were transferred to
ResCap Liquidating Trust (“ResCap”)-an entity
which is not a party to this action. (See OSC Resp.
at 2 (citing McEllrath Decl. Exs. B & C).) The Trust also
averred that “ResCap succeeded to all of Residential
Funding's rights and interests under Residential
Funding's agreement with Plaintiffs” (id.)
and described ResCap “as successor-in-interest to
Residential Funding” (id. at 4). The Trust
established the citizenship of ResCap's trustees
(id. at 3) and argued that since “[a]ll of
ResCap's trustees are diverse from Plaintiffs, ”
“ResCap, as successor-in-interest to Residential
Funding, is also diverse from Plaintiffs” (id.
at 4). Thus, the Trust assumes that because ResCap is
Residential Funding's successor-in-interest, the court
should look to ResCap's citizenship and disregard
Residential Funding's citizenship in analyzing diversity
jurisdiction. (See id.) Once again, however, the
Trust fails to provide the court with any legal authority to
support this assumption. (See generally id.)
similar issue arose in Aaron v. SmithKline Beecham
Corp., No. 09-cv1071-JPG, 2010 WL 1752546 (S.D. Ill.
Apr. 28, 2010), when the action was removed to federal court.
In Aaron, a non-party, as successor-in-interest to
one of the defendants, removed the action to federal court on
grounds of diversity jurisdiction. Id. at *1. The
defendant was incorporated in and had its principal place of
business in Pennsylvania. Id. at *3. The plaintiffs
were also citizens of Pennsylvania, and so they argued that
the case should be remanded. See Id. The removing
non-party argued that diversity of citizenship was complete
because the defendant was dissolved and no longer existed and
the removing non-party, as the defendant's
successor-in-interest, was a citizen of Delaware.
Id. The Aaron court construed the removing
non-party's argument as a claim that the defendant had
been fraudulently joined to defeat diversity. Id.
Ultimately, the court ruled that because Pennsylvania law
authorized suits by and against dissolved corporations for a
period of time consistent with the filing of the
plaintiffs' lawsuit, the defendant was “neither a
nominal party . . . nor a fraudulently joined party.”
Id. at *5. As a result, the court remanded the case.
Id. at *6. Thus, in Aaron, the mere fact
that the removing non-party was the
“successor-in-interest” to the defendant was not
sufficient in itself to disregard the citizenship of the
defendant for purposes of analyzing diversity jurisdiction.
on the analysis in Aaron, this court similarly
concludes that the mere fact that ResCap is a
successor-in-interest to Residential Funding does not mean
that the court may disregard Residential Funding's
citizenship for purposes of its analysis of diversity
jurisdiction. More is required to demonstrate that
Residential Funding is a nominal party whose citizenship may
be ignored. Accordingly, the Trust's response to
the court's order to show cause is insufficient to
demonstrate the court's diversity jurisdiction.
the court provides the Trust with one last opportunity to
demonstrate that diversity jurisdiction exists and its
removal of this action was proper. See Gaus v. Miles,
Inc., 980 F.2d 564, 566 (9th Cir. 1992) (“The
‘strong presumption' against removal jurisdiction
means that the defendant always has the burden of
establishing that removal is proper.”). The Trust may
satisfy the court's order to show cause in one of two
ways. The Trust may provide sufficient factual and legal
grounds for the court to conclude that it can disregard
Residential Funding's citizenship for purposes of
establishing diversity jurisdiction. Alternatively, the Trust
may provide the court with information concerning Residential
Funding's citizenship sufficient for the court to
conclude that complete diversity of citizenship exists among
the parties. See Johnson, 437 F.3d at 899 (setting
forth the requirements for demonstrating the citizenship of
an LLC for purposes of establishing diversity jurisdiction).
Either showing would be sufficient for the court to conclude
that it had subject matter jurisdiction over this action.
Trust must respond to this order to show cause within seven
(7) days of the date of this order. If the Trust fails to
timely respond or once again fails to provide sufficient
information for the court to conclude that it has subject
matter jurisdiction over this action, the court will remand
the action to state court. The court will not provide the
Trust with any additional opportunities to demonstrate
subject matter jurisdiction. Plaintiffs may, but are not
required to, respond to this order to show cause within the
 The court specifically noted that to
determine the citizenship of a limited liability company
(“LLC”) like Residential Funding, the court must
consider the citizenship of all its members. (See
Id. at 3 n.3 (citing Johnson v. Columbia Props.
Anchorage, LP, 437 F.3d 894, 899 (9th Cir. 2006)
(“[A]n LLC is a citizen of every state of which its
owners/members are citizens.”)).)
The Aaron case involved a corporation, whereas
Residential Funding is an LLC. In its response to the
court's order to show cause, the Trust avers that
Residential Funding is a
Delaware LLC with its principal place of business in
Minneapolis, Minnesota. (OSC Resp. at 1.) Under Federal Rule
of Civil Procedure 17(b)(3), however, the court looks to the
law of the state in which the district court is located to
determine the capacity of an LLC to sue and be sued.
See Fed. R. Civ. P. 17(b)(3); see also Vill.
Pizzeria Enterprizes v. Cohen, No. CV 08-7232-VBF(RCX),
2008 WL 11337729, at *2 (C.D. Cal. Dec. 11, 2008)
(“Under FRCP 17(b)(3), therefore, an LLC's capacity
to sue is determined ‘by the law of the state where the
court is located.'”) (quoting Fed.R.Civ.P.
17(b)(3)). Under Washington law, “until the filing of a
certificate of cancellation as provided in RCW 25.15.080 . .
., the persons winding up the [LLC's] affairs may, in the
name of, and for the benefit of, the [LLC], . . . defend
suits . . . .” RCW 25.15.295(2). The same is true under
Delaware law, which states that “until the filing of a
certificate of cancellation as provided in [6 Del. C.] §
18-203 . ...