Trial Practice and Procedure

• Publication year: 2013

Trial Practice and Procedure

John O'Shea Sullivan

Ashby Kent Fox

Amanda E. Wilson

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Trial Practice and Procedure

by John O'Shea Sullivan^* Ashby Kent Fox^** and Amanda E. Wilson^***

The 2012 survey period yielded several noteworthy decisions relating to federal trial practice and procedure in the United States Court of Appeals for the Eleventh Circuit, several of which involved issues of first impression. This Article analyzes recent developments in the Eleventh Circuit, including significant rulings in the areas of arbitration, statutory interpretation, subject matter jurisdiction, and civil procedure.¹

I. SUBJECT MATTER JURISDICTION—WHETHER A DISSOLVED CORPORATION HAS A PRINCIPAL PLACE OF BUSINESS FOR PURPOSES OF DIVERSITY JURISDICTION

In Holston Investments, Inc. B.V.I. v. LanLogistics Corp.,² the Eleventh Circuit addressed, as a matter of first impression, whether a dissolved or inactive corporation has a principal place of business for purposes of diversity jurisdiction.³ Holston Investments (Holston) sued LanLogistics Corporation (LanLogistics) for breach of contract in the

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United States District Court for the Southern District of Florida, alleging diversity jurisdiction. Holston was a citizen of Florida. LanLogistics was a Delaware corporation headquartered in Florida. When Holston filed suit, LanLogistics had dissolved and forfeited its authority to conduct business in Florida.⁴

LanLogistics challenged the district court's subject matter jurisdiction and moved to vacate the final judgment.⁵ LanLogistics argued that the court lacked subject matter jurisdiction because the corporation was a citizen of Florida, like Holston, and thus, pursuant to 28 U.S.C. § 1332,⁶ the parties were not diverse.⁷ The district court found that diversity jurisdiction existed, and LanLogistics appealed.⁸

On appeal, the Eleventh Circuit noted that "[d]iversity jurisdiction is determined at the time the complaint was filed,"⁹ and a corporation shall be deemed to be a citizen of both the state in which it was incorporated and the state where it has its principal place of business.¹⁰ The court acknowledged that the purpose of diversity jurisdiction is to "'provide a separate forum for out-of-state citizens against the prejudices of local courts and local juries.'"¹¹ Discussing whether complete diversity existed between Holston and LanLogistics, the court stated that "[t]he issue here is whether a dissolved or inactive corporation has a principal place of business."¹² The court noted that it was a case of first impression for the Eleventh Circuit, and the others circuits are not in agreement.¹³

The court first cited the United States Court of Appeals for the Second Circuit's finding that "a corporation's principal place of business must be identified regardless of whether the corporation is defunct."¹⁴ This approach recognized that a dissolved corporation may "still have a local

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presence that would alleviate concerns about local bias."¹⁵ The Second Circuit found that if a dissolved corporation is deemed to be a citizen of the state where it last conducted business, that "ensures federal jurisdiction will not be extended to corporations to which Congress had no intention of providing the benefit."¹⁶ The United States Court of Appeals for the Third Circuit rejected finding a principal place if one does not exist.¹⁷ Thus, the court held that a "dissolved . . . corporation is a citizen only of the state in which it was incorporated."¹⁸

By contrast, the United States Courts of Appeals for the Fourth and Fifth Circuits utilize the "facts and circumstances test,"¹⁹ and held that "the extent of a corporation's local character drives the determination as to whether a principal place of business exists for purposes of federal jurisdiction."²⁰ These circuits found that a state where a corporation had been inactive for a substantial period of time should not be deemed the corporation's principal place of business.²¹

The Eleventh Circuit also looked to the United States Supreme Court's decision in Hertz Corp. v. Friend,²² which held that "simple jurisdictional tests are preferable even if application of the rule occasionally cuts against the basic rationale of [28 U.S.C.] § 1332."²³ In Hertz, the Supreme Court reasoned that courts should require "'straightforward rules under which they can readily assure themselves of their power to hear a case.'"²⁴ Accordingly, the Supreme Court in Hertz held that a "corporation's principal place of business is determined [by] where the corporation's 'nerve center' is located."²⁵

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The Eleventh Circuit adopted the Third Circuit's rule that a dissolved corporation lacks a principal place of business.²⁶ The court held that this rule aligned closely with the Supreme Court's analysis in Hertz, whereas the Second Circuit's rule focused not on a corporation's nerve center approach, but rather on where its business was last conducted.²⁷ The Eleventh Circuit rejected the Second Circuit's approach because, "under that rule a corporation could be considered a citizen of a state in which it was not a citizen before dissolution."²⁸

Applying this analysis to the instant case, the Eleventh Circuit held that because LanLogistics had dissolved and lost its ability to conduct business in Florida at the time Holston filed suit, LanLogistics was not a citizen of Florida, but rather was only a citizen of Delaware, the state where it was incorporated.²⁹ Thus, complete diversity of citizenship existed, and the district court had subject matter jurisdiction.³⁰

II. STATUTORY INTERPRETATION—WHETHER THE HOME AFFORDABLE MODIFICATION PROGRAM PROVIDES AN IMPLIED PRIVATE RIGHT OF ACTION TO BORROWERS

In Miller v. Chase Home Finance, LLC,³¹ the Eleventh Circuit addressed, for the first time in a published opinion, whether the Home Affordable Modification Program (HAMP) provides an implied private right of action to borrowers against loan servicers.³² In Miller, borrower Jason Miller (Miller) sued his mortgage lender, Chase Home Finance, LLC (Chase), alleging that Chase violated HAMP by declining to modify Miller's loan.³³ The United States District Court for the Northern District of Georgia dismissed Miller's complaint, finding in pertinent part that HAMP did not provide a private right of action. Miller appealed and the Eleventh Circuit affirmed, holding that HAMP did not

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provide borrowers with an express or implied private right of action to sue their loan servicers.³⁴

The court noted that HAMP was promulgated by the Department of the Treasury, as part of the Emergency Economic Stabilization Act of 2008 (EESA).³⁵ HAMP was designed to "prevent avoidable home foreclosures by incentivizing loan servicers to reduce the required monthly mortgage payments for certain struggling homeowners."³⁶ Although loan servicers must abide by HAMP's guidelines when determining whether a borrower is eligibile for a loan modification, the Treasury Secretary designated Freddie Mac to conduct compliance assessments of HAMP participants.³⁷ Because "[n]either HAMP nor EESA expressly creates a private right of action for borrowers against loan servicers," the issue before the court was whether an implied private right of action exists under HAMP.³⁸

The court looked to the following factors in its analysis:

(1) is the plaintiff one of the class for whose especial benefit the statute was enacted; (2) is there any indication of legislative intent, explicit or implicit, either to create such a remedy or to deny one; (3) is it consistent with the underlying purposes of the legislative scheme to imply a remedy for the plaintiff; and (4) is the cause of action one traditionally relegated to state law, in an area basically the concern of the States, so that it would be inappropriate to infer a cause of action based solely on federal law.³⁹

Applying these factors to HAMP and EESA, the court held that it is "clear that no implied right of action exists."⁴⁰

First, the court noted that EESA and HAMP were designed to help restore stability to the nation's economy and were not passed for the "especial benefit" of homeowners, even though the homeowners may benefit from HAMP's incentives to loan servicers.⁴¹ Second, the court discerned no "legislative intent to create a private right of action" for borrowers under HAMP; rather, Congress gave the Treasury Secretary the right to bring a cause of action under the Administrative Procedure

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Act.⁴² Third, the court held that a private right of action against mortgage servicers would contravene HAMP's purpose of encouraging servicers to modify loans, because a private right of action would likely discourage servicer participation based on fear of exposure to litigation.⁴³ Finally, the court found that it should not infer a cause of action under HAMP because state law generally governs the law of contracts and real property.⁴⁴

The Eleventh Circuit concluded that because none of the relevant factors favored finding an implied private right of action under HAMP, the right does not exist.⁴⁵ Thus, the Eleventh Circuit affirmed the District Court's finding that Miller lacked standing to pursue his claims against Chase insofar as they were premised on an alleged breach of HAMP obligations.⁴⁶

III. FAIR DEBT COLLECTION PRACTICES ACT

A. Whether a Defendant's Settlement Proposal Which Offers To Pay the Full Amount of Statutory Damages Requested, But Does Not Contain an Offer of Judgment Against Defendant, Moots a Plaintiff's Claims Under the Fair Debt Collection Practices Act

In Zinni v. ER Solutions, Inc.,⁴⁷ the Eleventh Circuit addressed whether a defendant's settlement proposal, which offered to pay the full amount of statutory damages requested under the Fair Debt Collection Practices Act (FDCPA)⁴⁸ but did not contain an offer of judgment against the defendant, moots a plaintiff's claims under the FDCPA.⁴⁹ In Zinni, the plaintiffs appealed the United States District...