[00:00:00] Speaker 00:
The first matter for argument is speculation or from Relief Trust versus New Res 23-3484.

[00:00:08] Speaker 00:
Each side has 10 minutes, and I believe we have one person on video.

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And I want to make sure, can each of you see everything that you need?

[00:00:25] Speaker 01:
Yes, Your Honor.

[00:00:26] Speaker 00:
All right, and how about, I think it's, is it Mr. Lachman or Lachman?

[00:00:33] Speaker 00:
Lachman?

[00:00:34] Speaker 00:
Okay, can you see what you need?

[00:00:36] Speaker 00:
Okay.

[00:00:37] Speaker 00:
All right.

[00:00:38] Speaker 00:
If any of you have any problems hearing at any point or seeing what you need to see, let us know.

[00:00:43] Speaker 00:
But this usually works quite well.

[00:00:45] Speaker 00:
All right, so we're ready to proceed.

[00:00:48] Speaker 00:
So we'll begin with, I believe it's Mr. Hong is here by Zoom.

[00:00:52] Speaker 00:
So please state your appearance, Mr. Hong, and you have 10 minutes total.

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And if you wish to reserve any time for rebuttal, that's part of the 10 minutes.

[00:01:02] Speaker 00:
Good morning.

[00:01:03] Speaker 01:
Yes, good morning, Your Honor.

[00:01:04] Speaker 01:
It's Joseph Hong for the Speculation Trust, Orphan Relief Trust.

[00:01:10] Speaker 01:
And may I reserve four minutes for rebuttal, Your Honor?

[00:01:13] Speaker 00:
All right, that's aspirational, but go ahead.

[00:01:18] Speaker 01:
Is that yes?

[00:01:20] Speaker 00:
Well, yes, but if we have questions the whole time, then we're going to use up your time.

[00:01:25] Speaker 00:
So that's the way it works.

[00:01:29] Speaker 01:
Thank you.

[00:01:33] Speaker 00:
Go ahead.

[00:01:34] Speaker 01:
Thank you, Your Honors.

[00:01:35] Speaker 01:
Your Honors, as briefed in this case, this is

[00:01:38] Speaker 01:
The trust's appeal on the denial of the motion to remand based on diversity jurisdiction and

[00:01:49] Speaker 01:
Amended complaint, as stated in the moving papers, Your Honor, the original complaint was filed in state court.

[00:01:57] Speaker 01:
Thereafter, approximately five or six months later, after a preliminary injunction was issued, an amended complaint was filed stating the new citizenship for the trust based on the new trustee's citizenship.

[00:02:14] Speaker 01:
It was then removed.

[00:02:16] Speaker 01:
by new reds and a motion for remand was sought and it was denied based on lack of subject matter jurisdiction and unless your honors have any questions i don't really have anything more than the moving papers and specifically the reply mr hong if the district court finds there's jurisdictional manipulation should a sanction be ordered and if so what would that sanction be well

[00:02:45] Speaker 01:
Yes, that's a good question.

[00:02:46] Speaker 01:
First of all, on jurisdictional manipulation, I believe this circuit has somewhat addressed it in the

[00:02:56] Speaker 01:
the attorney's trust versus the videotape case.

[00:03:01] Speaker 01:
And in terms of manipulation, that case, and it seems like most of the cases dealt with creating jurisdiction in the federal court through assignments.

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And in this case, it's the opposite.

[00:03:15] Speaker 01:
And it wasn't a manipulation in terms of

[00:03:19] Speaker 01:
destroying diversity.

[00:03:21] Speaker 02:
I agree with you that the other cases primarily deal with a situation of destroying diversity when it's filed first in federal court.

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This obviously went the other way.

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My question is, if the district court finds judicial manipulation, why couldn't it sanction in a way that's just kind of the reverse and say, no, I'm not going to send you back?

[00:03:42] Speaker 01:
Well, yes, your honor, then I imagine that would be the correct sanction saying no, your your client's motion to remand is denied.

[00:03:51] Speaker 01:
But in this case, again, there was no manipulation.

[00:03:56] Speaker 01:
I will say, your honor, this these are what we call second generation cases, and they flow from

[00:04:03] Speaker 01:
first generation when I say I'm sorry when I say second generation cases in particularly in Nevada and it's it all stems from the first generation cases in Nevada regarding HOA foreclosure sales and for those cases where the first generation where the deeds of trust was survived the HOA foreclosure sales that became the bright byproduct of the second generation cases based on the 106 240 statute the 10-year rule as we call it now there are many many

[00:04:33] Speaker 01:
real estate companies and investors that are plaintiffs or owners in the second generation cases and many of them are affiliates or many of them know each other quite well and that's what we have here.

[00:04:48] Speaker 01:
I will say for the court, the Tercato

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Inc., the Delaware Corporation, that's also shared by another entity involved in these cases.

[00:04:59] Speaker 01:
So there was no manipulation.

[00:05:02] Speaker 02:
Well, you say there's no manipulation, but the district court clearly found

[00:05:06] Speaker 02:
based on whatever it was looking at that there was manipulation.

[00:05:09] Speaker 02:
So are you saying that maybe the proper procedure here is to remand for finding on some test as to whether the district court has a basis for finding jurisdictional manipulation?

[00:05:21] Speaker 01:
That would be great, your honor.

[00:05:24] Speaker 01:
And as submitted in the district court, it was a sworn declaration, sworn affidavit by the officer of Tercato Inc.

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testifying that Tercato Inc.

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was the trustee for this trust, became the trustee for this trust.

[00:05:41] Speaker 00:
So what's your best precedent where a plaintiff was allowed to defeat federal diversity jurisdiction by changing the citizenship after filing the complaint?

[00:05:51] Speaker 01:
Well, the best precedent, Judge, Your Honor, I'm sorry, is that the cases that are relied upon by NURES are in situations where there was jurisdiction after removal, or the case was filed in federal court, and then there was an amendment.

[00:06:09] Speaker 01:
This scenario, an amended complaint, this scenario, the amended complaint was filed in state court.

[00:06:16] Speaker 00:
Right.

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I know that.

[00:06:17] Speaker 00:
But do you have a case on point?

[00:06:22] Speaker 00:
Because the federal cases say it's at the time of filing of the complaint, right?

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Right.

[00:06:31] Speaker 00:
But you filed it in state court.

[00:06:33] Speaker 00:
It's undisputed that there was diversity when it was filed in state court, right?

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And somewhere between when they removed, there was a change.

[00:06:45] Speaker 01:
No, no, no, no.

[00:06:47] Speaker 01:
There was no diversity even at the amended complaint level, which was filed in state court.

[00:06:53] Speaker 00:
When you filed in state court, was there diversity of citizenship when you filed the first complaint?

[00:06:59] Speaker 00:
No.

[00:07:01] Speaker 00:
You just said it happened at the amended complaint.

[00:07:04] Speaker 01:
No, I'm sorry.

[00:07:06] Speaker 01:
I apologize.

[00:07:06] Speaker 00:
OK, amended complaint are not the same.

[00:07:09] Speaker 01:
Right.

[00:07:10] Speaker 01:
The complaint, there was no diversity of citizenship.

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The amended complaint, there was no diversity of citizenship.

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Both at the state court level.

[00:07:21] Speaker 01:
So the cases that have been relied upon by New Res pertain mostly and I think I believe all of them when there was a proper removal based on diversity and then a change of citizenship to destroy diversity when the case was already

[00:07:40] Speaker 00:
So when did speculation first inform new res that it had a trustee that its trustee was incorporated in Delaware?

[00:07:49] Speaker 01:
Uh, I believe that was, I believe that was in the amended complaint.

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If the citizenship was not fully stated in the amended complaint, then it would have had to have been at the time of the motion to remand your honor.

[00:08:03] Speaker 00:
Okay.

[00:08:04] Speaker 00:
You're at three minutes and 32 seconds.

[00:08:06] Speaker 00:
You want to save that time?

[00:08:08] Speaker 01:
Yes.

[00:08:09] Speaker 01:
Yes.

[00:08:09] Speaker 01:
Thank you.

[00:08:10] Speaker 00:
Okay.

[00:08:11] Speaker 00:
All right.

[00:08:11] Speaker 00:
We'll hear from New Res.

[00:08:23] Speaker 00:
Good morning.

[00:08:24] Speaker 03:
May it please the court, your honors, Scott Lachman from New Res doing business at Shell Point Mortgage Servicing.

[00:08:31] Speaker 03:
Shell Point respectfully requests

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This court reaffirmed the Horn Book principle that citizenship for purposes of diversity jurisdiction depends on the original complaint, thus freezing in time the citizenship of the parties, just as Your Honor mentioned.

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Shel Point also requests the court reaffirm the district court's judgment.

[00:08:54] Speaker 00:
Take judicial... Well, I thought I just heard your friend on the other side say that when the original complaint was filed, there wasn't diversity.

[00:09:01] Speaker 03:
And Your Honor, that's correct.

[00:09:02] Speaker 03:
At the time of the original complaint, Speculation Trust sued both Shell Point and the foreclosure trustee, Quality Loan.

[00:09:11] Speaker 03:
At that time, Speculation represented to the court in its original complaint that it was a California citizen and Quality was also a California citizen.

[00:09:24] Speaker 03:
So we weren't able to remove the complaint to federal court until the amended complaint wherein

[00:09:31] Speaker 03:
speculation, removed quality as a defendant.

[00:09:37] Speaker 02:
What you're talking about is the time of filing rule, correct?

[00:09:42] Speaker 03:
Correct.

[00:09:43] Speaker 02:
But doesn't that apply mainly to actions that are originally brought in federal court?

[00:09:50] Speaker 03:
Your Honor, the time of filing rule applies to both cases filed in state court and in federal court.

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The time of filing rule is long-standing United States Supreme Court authority.

[00:10:05] Speaker 03:
As the court stated in Grupo Dataflux 451 U.S.

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567, it's long been the case that jurisdiction of the courts depends on things at the time that the action was brought.

[00:10:17] Speaker 03:
The Supreme Court said in that case that the time of filing rule is hornbook law, quite literally taught to sheer law students in any basic course of federal civil procedure.

[00:10:29] Speaker 03:
While it's been ages since we were 1Ls, the law has not changed.

[00:10:34] Speaker 03:
Just this January, the U.S.

[00:10:36] Speaker 03:
Supreme Court confirmed the time of filing rule in Royal Canine v. Walschlager, 604 U.S.

[00:10:42] Speaker 03:
22, in footnotes 5, 6, and 8.

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The court specifically in footnote 5 said, in diversity cases, courts evaluate a party's citizenship at the time that the suit is brought, and never again later.

[00:10:58] Speaker 03:
Speculations, California citizenship, always has to be California as it was pled in the original complaint.

[00:11:08] Speaker 04:
If I can ask a question here, I mean, there's a kind of odd procedural issue here.

[00:11:13] Speaker 04:
You know, most cases where they create jurisdiction or defeat jurisdiction, I think they're clearly here with some manipulation here, you originally had

[00:11:22] Speaker 04:
You're able to remove, but they did something and you can't remove here looks like there was never Actual complete diversity to remove it so at the time the original complaints filed in the state court There's no complete diversity because speculation is a California citizen, and there was this other party defendant quality loans That's California, so you can't remove then it's amended quality is dropped, but then the new speculation creates

[00:11:51] Speaker 04:
of the

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Do we have jurisdictions?

[00:12:12] Speaker 04:
It's kind of an odd fact pattern here.

[00:12:14] Speaker 04:
It's not your typical one where you had it and destroyed it or created it.

[00:12:17] Speaker 04:
This is they never had it ever, in part maybe because it was through manipulations.

[00:12:23] Speaker 03:
It's very odd here.

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And Your Honor, it's a unique fact pattern.

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Just like Mr. Hong said, we could not locate a case with this exact fact pattern anywhere in the country.

[00:12:34] Speaker 03:
But we're here today and allowing speculation to change its citizenship and destroy diversity

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would contravene principles articulated by the United States Supreme Court in Connolly v. Taylor, from 1829, and Millon v. Torrance, 1824.

[00:12:50] Speaker 03:
That's 200 years of well-engrained authority.

[00:12:54] Speaker 03:
This court applied that authority in a case called Strotek.

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And in that case, 300 F3D 1129, 2002, it said that once jurisdiction attaches, a party cannot thereafter, by its own change of citizenship, destroy diversity.

[00:13:09] Speaker 03:
The court went on to say, nor may the presence of a sham or nominal party defeat removal on diversity grounds.

[00:13:16] Speaker 03:
Adhering to these core principles, speculation cannot just change its citizenship, and then amend its complaint by adding a trustee of a sham or nominal character.

[00:13:26] Speaker 03:
Speculation ignored 200 years of authority, inventing a diversity-destroying trustee after filing its original lawsuit.

[00:13:34] Speaker 03:
It added a trustee, Tercato, Inc., five days before amending the complaint.

[00:13:39] Speaker 03:
Making matters worse, now Tercato is what Delaware calls a void LLC.

[00:13:44] Speaker 03:
The rationale for this label is in its Delaware filings.

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The only filing was in 2002, or 2022, right before it amended its complaint.

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It's been three years since and there's been no corporate filings.

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Tercato is a stereotypical sham or nominal trustee.

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It is blatantly obvious what speculation tried to do.

[00:14:09] Speaker 03:
This court appears to see that, the district court saw that, and this court cannot stand for it.

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This court should also not stand for opening briefs that conceal the true facts.

[00:14:21] Speaker 03:
Our last request for relief is sanctions against both Speculation Trust and its counsel for filing an opening brief without governing law and a complete set of facts as required by Rule 28.

[00:14:35] Speaker 03:
Judge Rash, you mentioned a remand for sanctions.

[00:14:40] Speaker 03:
Obviously, our main request is to affirm the judgment.

[00:14:44] Speaker 03:
To the extent this court does remand for any reasons, we ask that it be crystal clear that the remand be strictly for sanctions.

[00:14:55] Speaker 00:
So when speculation filed its amended complaint, what actions did you undertake to determine citizenship?

[00:15:02] Speaker 03:
Your Honor, my former partner, Mellie Morgan, reached out to Speculations Council and requested information regarding citizenship.

[00:15:13] Speaker 03:
So we did some research on citizenship.

[00:15:16] Speaker 03:
This court needs to remember this is an HOA foreclosure case, and Speculation Trust is not the borrower.

[00:15:22] Speaker 03:
So if Speculation Trust was the borrower, for instance, we would have all this information in our loan file.

[00:15:29] Speaker 03:
Speculation Trust didn't even purchase the property at the sale.

[00:15:32] Speaker 03:
It purchased it after the sale.

[00:15:34] Speaker 03:
So there's very limited information in the public sphere.

[00:15:38] Speaker 03:
Or even if you Google Speculation Orphan Relief Trust, there's just nothing out there, except for this case.

[00:15:45] Speaker 03:
And so when Speculation amended its complaint, my former partner, Melanie Morgan, reached out to Speculation's counsel.

[00:15:53] Speaker 03:
And you'll see in the record the email correspondence back and forth.

[00:15:59] Speaker 03:
The only information that we had was that through the original complaint that speculation alleged to be a California citizen.

[00:16:09] Speaker 00:
So if at the time of removal of a state civil case to a federal district court, there is not complete diversity, may the federal court retain jurisdiction or must it remand to the state court?

[00:16:21] Speaker 03:
Your Honor, I think there's two different issues going on.

[00:16:25] Speaker 03:
At the time of the initial complaint, you had

[00:16:29] Speaker 03:
Shell point, quality on one side of the V, and on the other side of the complaint you had speculation.

[00:16:36] Speaker 03:
Here there's a party that was removed.

[00:16:39] Speaker 03:
So we're ignoring that complaint.

[00:16:41] Speaker 03:
We're ignoring that party.

[00:16:43] Speaker 03:
Under the law, that party never even became a party because it was never served.

[00:16:51] Speaker 03:
We ignore that party's citizenship like it never even existed.

[00:16:58] Speaker 03:
And going back, we're going back to the time of filing rule.

[00:17:02] Speaker 02:
Wait a minute, counsel.

[00:17:03] Speaker 02:
Isn't the test for cases removed from state court that there must be diversity at the time the case is initiated and at the time of removal?

[00:17:13] Speaker 03:
That's incorrect, your honor.

[00:17:15] Speaker 03:
As to at the time of removal, that applies to federal jurisdiction, supplemental jurisdiction,

[00:17:25] Speaker 03:
in adding parties.

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It doesn't involve here a party who changed its own citizenship.

[00:17:34] Speaker 03:
And to the extent this court does find that it is, as of the time of removal, we request the court find that this Tercato is a sham trustee.

[00:17:45] Speaker 03:
It's obvious from the record that it is.

[00:17:51] Speaker 03:
This case was meant for a couple things, delaying foreclosure,

[00:17:56] Speaker 03:
did some jurisdictional games, and there's been hide-the-ball litigation tactics.

[00:17:59] Speaker 03:
They're very bothersome to Shell Point.

[00:18:01] Speaker 03:
It should bother this court, too.

[00:18:03] Speaker 03:
Again, Shell Point requests this court issue sanctions, whether that be on appeal or a limited remand.

[00:18:09] Speaker 03:
We request that the court affirm the judgment and reaffirm the Horn Book diversity jurisdiction law, specifically the time of filing rule, where citizenship is frozen as of the amended complaint.

[00:18:23] Speaker 03:
Better yet,

[00:18:24] Speaker 03:
Speculation should just let the appeal go.

[00:18:26] Speaker 03:
This appeal is frivolous, it's nonsensical, and it can undo 200 years of United States Supreme Court president.

[00:18:35] Speaker 03:
Thank you.

[00:18:35] Speaker 00:
All right.

[00:18:36] Speaker 00:
Thank you for your argument.

[00:18:38] Speaker 00:
All right.

[00:18:38] Speaker 00:
Mr. Hong, you have your rebuttal time.

[00:18:51] Speaker 00:
You're muted.

[00:18:54] Speaker 01:
Thank you, Your Honor.

[00:18:55] Speaker 00:
All right.

[00:18:55] Speaker 00:
I'm sure you said something important, but you better start over.

[00:18:59] Speaker 01:
I will.

[00:19:00] Speaker 01:
Your Honor, to start, I'm hearing two different things from Shell Point here.

[00:19:05] Speaker 01:
I just heard counsel's argument, ignore the complaint.

[00:19:10] Speaker 01:
But what we have here is the complaint originally filed in state court, there was no diversity jurisdiction.

[00:19:17] Speaker 01:
Because at that time, my client's trustee

[00:19:21] Speaker 01:
was a California citizen.

[00:19:24] Speaker 01:
And another named defendant, Quality Loan Servicing Corporation, was a California citizen.

[00:19:31] Speaker 04:
Why did you name Quality Loan the original complaint and why did you drop it later in the amended complaint?

[00:19:36] Speaker 01:
Yes, Your Honor.

[00:19:37] Speaker 01:
The reason being in these cases is because Quality Loan was the trustee of New Res moving forward with the foreclosure sale.

[00:19:47] Speaker 01:
And as soon as the complaint was filed, a motion for a TRO or a preliminary injunction was sought.

[00:19:53] Speaker 01:
And henceforth, the trustee was named as well.

[00:19:58] Speaker 01:
Now, once the preliminary injunction was entered by the state court and moving forward, we did not, my client felt that the trustee was no longer a necessary party because the shell point was already bound by the preliminary injunction.

[00:20:17] Speaker 01:
And that's why the amended complaint.

[00:20:19] Speaker 01:
And by the way, the amended complaint, your honors, it wasn't just filed just because it was triggered

[00:20:25] Speaker 01:
based on a motion to dismiss filed by ShellPoint, which means under NRCP 15, which is the parallel to FRCP 15, as a matter of course, within 21 days, a party can file an amended complaint in response to a motion to dismiss.

[00:20:46] Speaker 01:
And that's what was done.

[00:20:48] Speaker 01:
But if we're going to go

[00:20:50] Speaker 01:
This is where I'm a bit confused with the arguments of Shell Point.

[00:20:55] Speaker 01:
If Shell Point wants to go with the original complaint, I believe as Your Honor stated earlier, then the original complaint, there was no diversity jurisdiction.

[00:21:03] Speaker 01:
There just was not.

[00:21:05] Speaker 01:
And Your Honor asked me, what's your best case for this?

[00:21:10] Speaker 01:
It was presented, I believe, in the opening brief, but it's really the

[00:21:16] Speaker 01:
Ramirez versus City of San Bernardino case, this circuits court where that case made very clear an amended complaint moots out an original complaint, which means the original complaint is completely meaningless upon the filing of an amended complaint.

[00:21:37] Speaker 01:
And that's what we had here.

[00:21:38] Speaker 01:
And we filed the amended complaint in state court.

[00:21:41] Speaker 01:
And your honor also addressed this.

[00:21:45] Speaker 01:
The time of filing rule, the textbook horn book, that's for cases that are filed in federal court.

[00:21:52] Speaker 01:
And the Grupo case, the US Supreme Court case, that was a scenario.

[00:21:56] Speaker 01:
It's when a case is filed in federal court and there is diversity jurisdiction.

[00:22:02] Speaker 01:
And then while in federal court, a party

[00:22:06] Speaker 01:
Attempts to change citizenship to destroy diversity and that's the rationale where we go to the time of the filing rule in federal court or better yet we can go to the time of the removal when the case is removed is your honor also stated when the case is removed and

[00:22:25] Speaker 01:
My client, the trust, respectfully asked for sanctions against Shellpoint for these bullying tactics and trying to quench and bully my client into raising arguments that it's entitled to raise.

[00:22:38] Speaker 04:
What was the basis for adding Terkoto as a member of the speculation trust?

[00:22:45] Speaker 01:
The basis was to have a corporation be the trustee, Your Honor.

[00:22:50] Speaker 04:
Sorry, can you repeat that?

[00:22:52] Speaker 01:
to have a corporation be a trustee rather than an individual.

[00:22:57] Speaker 04:
And it just happened to be Delaware?

[00:22:59] Speaker 01:
Well, I believe most companies or most real estate investors or real estate companies in these cases want to have Delaware corporations, just like most have.

[00:23:13] Speaker 04:
And why wasn't this mentioned in the opening brief?

[00:23:16] Speaker 04:
I mean, this is a key issue, but none of this was mentioned in the opening brief.

[00:23:20] Speaker 01:
Well, in terms of mentioning in the opening brief, we referenced or we relied on the amended complaint.

[00:23:27] Speaker 01:
And at the time of removal, there was no diversity jurisdiction.

[00:23:32] Speaker 01:
That's, I mean, that's why, Your Honor.

[00:23:35] Speaker 01:
But in terms of the reasoning, the reasoning for it, I did not, my client, our position was we didn't feel like we needed reasoning as to internally for a trust as to the trust is business in terms of what they want to do for a trustee.

[00:23:50] Speaker 01:
But if we're going to go back to the original complaint, which again became moot as a matter of law at the time the amended complaint was filed, and that's been confirmed by this court in Ramirez, fine.

[00:24:05] Speaker 01:
The original complaint, there was no diversity of jurisdiction even at that time.

[00:24:10] Speaker 00:
All right.

[00:24:10] Speaker 00:
Unless there's further questions, your time has expired.

[00:24:15] Speaker 00:
Thank you, Your Honor.

[00:24:15] Speaker 00:
All right.

[00:24:15] Speaker 00:
Thank you both for your argument this morning.

[00:24:17] Speaker 00:
This matter will stand submitted.