Fraudulent Joinder Permits Ignoring Unknown Citizenship of a Nontraditional Trust; Res Judicata Bars Repeat Foreclosure Challenges

Introduction

In Peter Otoh v. Federal National Mortgage Association et al., No. 24-12431 (11th Cir. Mar. 26, 2025) (per curiam) (non-argument calendar) (unpublished), the Eleventh Circuit affirmed the district court’s denial of a motion to remand in a removed foreclosure-related suit. The appeal presented a discrete but recurring removal question in mortgage litigation: may a federal court adjudicate fraudulent joinder without first establishing the citizenship of an allegedly non-diverse, nontraditional mortgage trust when the plaintiff’s claims against that trust are facially barred?

The panel—Judges Grant, Kidd, and Wilson—held that it may. Because fraudulent joinder is an exception to the complete-diversity requirement, a court may disregard the citizenship of the allegedly fraudulently joined party. On the facts here, the court concluded there was no possibility the plaintiff could state a claim against the VRMTG Asset Trust (“VRMTG Trust”), rendering its citizenship immaterial for jurisdictional purposes.

The case arises from a long-running dispute by pro se plaintiff Peter Otoh over attempts to foreclose on his home, premised on his contention that a 2018 loan transaction “refinanced” and thereby invalidated a 2013 security deed. The defendants include Fannie Mae, VRMTG Trust (through its owner trustee, U.S. Bank Trust National Association), Nationstar Mortgage, LLC d/b/a Mr. Cooper, Mr. Cooper Group, Newrez, LLC d/b/a Shellpoint Mortgage Servicing, and Auction.com Enterprises, LLC.

The key issues on appeal were: (1) whether the district court could deny remand on fraudulent-joinder grounds without first establishing VRMTG Trust’s citizenship, notwithstanding a prior Eleventh Circuit remand in Otoh II clarifying the trust’s citizenship rule; and (2) whether the record showed that VRMTG Trust was fraudulently joined because there was no possibility of relief against it in light of Georgia tort law and res judicata.

Summary of the Opinion

The Eleventh Circuit affirmed the denial of remand. It held:

Defendants complied with the earlier remand directive in Otoh II by pursuing the alternative path the panel expressly preserved—arguing fraudulent joinder rather than re-pleading complete diversity via the trust’s beneficiaries.
Fraudulent joinder, once established by clear and convincing evidence, allows the court to disregard the allegedly non-diverse defendant entirely; therefore, VRMTG Trust’s citizenship was immaterial.
There was no possibility Otoh could state an intentional infliction of emotional distress claim under Georgia law based on foreclosure-related conduct that was legally authorized and not “extreme and outrageous.”
All remaining claims (seeking cancellation of the security deed, injunctive relief, and substantial damages) were barred by res judicata given prior final judgments from the bankruptcy court and the district court involving the same underlying foreclosure dispute and parties in privity.
Because Otoh did not brief any challenge to the merits dismissal on appeal, that issue was abandoned; the court therefore confined its affirmance to the denial of remand.

Analysis

Precedents Cited and Their Role

28 U.S.C. §§ 1332(a), 1441(a): Establish original jurisdiction over civil actions exceeding $75,000 in controversy with complete diversity, and authorize removal of cases that could have been filed in federal court. These statutes frame the baseline diversity-removal requirements that fraudulent joinder can override.
Hill v. BellSouth Telecomms., Inc., 364 F.3d 1308 (11th Cir. 2004): Confirms that removal is proper only if the case could originally have been filed in federal court. The court applies this foundational principle before turning to the fraudulent-joinder exception.
Triggs v. John Crump Toyota, Inc., 154 F.3d 1284 (11th Cir. 1998): Articulates fraudulent joinder as an exception to the complete-diversity requirement. The panel relies on Triggs to explain why the citizenship of a fraudulently joined party is ignored entirely.
Stillwell v. Allstate Ins. Co., 663 F.3d 1329 (11th Cir. 2011): Sets the Eleventh Circuit’s test and burden for fraudulent joinder: the removing party must prove by clear and convincing evidence that there is no possibility the plaintiff can state a claim against the joined party or that jurisdictional facts were fraudulently pleaded. The court applies this high standard to find VRMTG Trust was improperly joined.
Alliant Tax Credit 31, Inc. v. Murphy, 924 F.3d 1134 (11th Cir. 2019): Provides the standards of review—de novo for denial of remand and clear error for jurisdictional fact findings.
Rodemaker v. City of Valdosta Bd. of Educ., 110 F.4th 1318 (11th Cir. 2024): Clarifies standard of review for res judicata determinations (privity as a factual question reviewed for clear error; legal elements de novo).
Mayorga v. Benton, 875 S.E.2d 908 (Ga. Ct. App. 2022) (en banc): States Georgia’s stringent “extreme and outrageous” requirement for intentional infliction of emotional distress (IIED). The panel uses Mayorga to conclude foreclosure conduct exercised under a legal right is not “extreme and outrageous.”
In re Piper Aircraft Corp., 244 F.3d 1289 (11th Cir. 2001): Sets out the four elements of res judicata and the “could have been raised” principle. The panel applies Piper to bar claims replicating the same nucleus of operative fact litigated in prior bankruptcy and district court cases.
In re FFS Data, Inc., 776 F.3d 1299 (11th Cir. 2015): Confirms the finality of bankruptcy court judgments for res judicata purposes; used to establish the first two res judicata elements (final judgment by a court of competent jurisdiction).
Hart v. Yamaha-Parts Distribs., Inc., 787 F.2d 1468 (11th Cir. 1986): Addresses privity—parties sharing common interests in the same right are in privity. The panel uses Hart to find privity among successive lenders/servicers/investors asserting the right to foreclose on the same property.
Israel Discount Bank Ltd. v. Entin, 951 F.2d 311 (11th Cir. 1992), and Lobo v. Celebrity Cruises, Inc., 704 F.3d 882 (11th Cir. 2013): Define “same cause of action” through the “same nucleus of operative fact” test. Applied to hold that Otoh’s current claims arose from the same factual predicate as his earlier cases.
Timson v. Sampson, 518 F.3d 870 (11th Cir. 2008): Establishes that issues not briefed—even by pro se litigants—are abandoned. Used to confine the appeal to the remand issue and affirm without reaching the merits dismissal.
M.H. ex rel. C.H. v. Omegle.com LLC, 122 F.4th 1266 (11th Cir. 2024): The court reiterates that arguments first raised in a reply brief are not considered, declining to weigh new allegations of gamesmanship and misconduct offered only in reply.
Otoh v. Fannie Mae (“Otoh I”), No. 22-13279 (11th Cir. July 19, 2023) (unpublished): The earlier appeal affirming dismissal on res judicata grounds of substantially similar claims.
Otoh v. Fannie Mae (“Otoh II”), No. 23-12302 (11th Cir. Feb. 8, 2024) (unpublished): Held that VRMTG Trust is not a “traditional trust,” so its citizenship is determined by its beneficiaries; remanded to allow defendants either to establish diversity or to argue fraudulent joinder. The present opinion applies that instruction and accepts the fraudulent-joinder route.

Legal Reasoning

The court’s analytical path proceeds in three steps.

Scope of the Remand in Otoh II and the Role of Fraudulent Joinder. The prior Eleventh Circuit decision (Otoh II) clarified that VRMTG Trust is a nontraditional trust whose citizenship turns on its beneficiaries rather than its trustee. Importantly, Otoh II also authorized an alternative path on remand: defendants could either establish complete diversity by pleading the beneficiaries’ citizenship or raise fraudulent joinder. The defendants chose the latter. Because fraudulent joinder is an exception to complete diversity and requires the court to ignore the citizenship of a fraudulently joined defendant, VRMTG Trust’s unknown citizenship did not block the district court (or the Eleventh Circuit) from resolving the removal question.
Fraudulent Joinder: No Possibility of a Claim Against VRMTG Trust. Applying Stillwell’s clear-and-convincing standard, the court concluded there was no possibility that Otoh could state a claim against VRMTG Trust.
- Counts One and Two (IIED). Under Georgia law (Mayorga), IIED requires “extreme and outrageous” conduct. The district court found—and the panel agreed—that exercising a facially valid legal right to foreclose cannot meet this stringent standard. Allegations of “start-and-cancel” foreclosure scheduling and online publication of foreclosure notices did not convert lawful activity into outrageous tortious conduct.
- Counts Four through Eight (Cancellation of Security Deed; Injunctive and Monetary Relief). The court found these claims barred by res judicata. Two prior final judgments (the 2020 bankruptcy dismissal and a later federal dismissal affirmed in Otoh I) were rendered by courts of competent jurisdiction; the parties were the same or in privity because the successive lenders, servicers, and investors asserted the same right to foreclose on the same property; and the current claims arose from the same nucleus of operative fact—Otoh’s thesis that the 2018 transaction “refinanced” and invalidated the 2013 security deed. Because those contentions had already been litigated and rejected, Otoh could not relitigate them.
Having shown both tort and equitable theories were foreclosed as a matter of law, defendants carried their burden to establish fraudulent joinder.
Appellate Scope and Abandonment. The panel limited its review to the jurisdictional/remand ruling. Although the district court also dismissed the complaint on the merits, Otoh did not brief a challenge to that order, thereby abandoning it under Timson. Arguments first raised in reply regarding alleged misconduct by defendants were likewise disregarded under Omegle.

Impact and Practical Significance

Removal in Securitized Mortgage Litigation. Plaintiffs sometimes add securitization vehicles or mortgage trusts to defeat complete diversity. This opinion confirms that in the Eleventh Circuit, courts may resolve fraudulent-joinder disputes without first establishing the citizenship of such a trust—even when, as in Otoh II, the trust is “nontraditional” and its citizenship would otherwise turn on potentially numerous (and difficult-to-ascertain) beneficiaries. If there is no possibility of a viable claim against the trust, its citizenship is irrelevant.
Operationalizing Otoh II. Otoh II required beneficiary-based citizenship for nontraditional trusts but expressly allowed defendants to pivot to fraudulent joinder. This opinion demonstrates that pathway in practice: after an initial removal misstep and appellate remand, defendants can amend their position to fraudulent joinder and prevail if they meet the clear-and-convincing standard.
Res Judicata and Privity Among Mortgage Actors. The court reinforces that lenders, servicers, trustees, and investors asserting the same foreclosure rights over the same property stand in privity for claim-preclusion purposes. Plaintiffs who previously litigated the validity of a security deed cannot relitigate by swapping out particular entities in the loan’s chain of title or servicing history.
IIED Limits in Foreclosure Context. Reaffirming Georgia’s high IIED threshold, the court underscores that conduct incident to exercising a legal right to foreclose—even if distressing—is not “extreme and outrageous.” Tort claims premised solely on routine foreclosure mechanics are unlikely to survive.
Procedural Discipline on Appeal. The opinion also serves as a reminder that pro se litigants must brief issues to preserve them. Failure to challenge the merits dismissal meant the Eleventh Circuit did not review it.
Precedential Weight. The opinion is unpublished and thus non-precedential, but it is persuasive authority within the Eleventh Circuit. Its synthesis of Otoh II with Triggs/Stillwell will likely be cited in removal briefs where plaintiffs add nontraditional trusts to evade federal jurisdiction.

Complex Concepts Simplified

Fraudulent Joinder. A plaintiff cannot defeat federal diversity jurisdiction by suing a non-diverse defendant against whom the plaintiff has no viable claim. If the removing defendants prove by clear and convincing evidence that there is no possibility of a claim against that party, the court ignores that party’s citizenship and keeps the case in federal court.
Traditional vs. Nontraditional Trusts (for Citizenship). In federal diversity, a traditional trust’s citizenship is often determined by its trustee. A nontraditional trust (e.g., a business or statutory trust) takes the citizenship of its members/beneficiaries. Otoh II held VRMTG Trust is nontraditional, so its citizenship depends on its beneficiaries—often complex to ascertain. But if the trust is fraudulently joined, the court never needs to reach this issue.
Res Judicata (Claim Preclusion). Once a court enters a final judgment on the merits, the same parties (or those in privity with them) cannot relitigate the same claim or other claims arising from the same nucleus of operative fact that were or could have been raised before.
Privity. Parties are in privity when their interests are so closely aligned that the prior judgment fairly binds them. Successive lenders, servicers, trustees, or investors invoking the same security deed on the same property typically share such interests for preclusion purposes.
“Same Nucleus of Operative Fact.” Two cases involve the same cause of action when they arise from the same core facts. Changing legal theories or swapping parties does not avoid preclusion if the factual predicate is the same.
Intentional Infliction of Emotional Distress (Georgia). IIED requires conduct so extreme and outrageous that it exceeds all bounds of decency. Actions taken under a valid legal right (such as conducting a foreclosure in accordance with law) rarely meet this demanding standard.
Standards of Review. Denial of remand is reviewed de novo; jurisdictional factual findings (like privity) are reviewed for clear error; legal elements of res judicata are reviewed de novo.

Conclusion

This unpublished Eleventh Circuit decision supplies clear, practical guidance on the interplay between fraudulent joinder and nontraditional trust citizenship in removal practice. Even where a trust’s citizenship is unknown and would ordinarily require beneficiary-level pleading (per Otoh II), a district court may deny remand once defendants clearly show there is no possibility of a viable claim against the trust. On the merits proxy used to establish fraudulent joinder, the opinion reinforces two durable propositions: Georgia’s IIED threshold excludes routine foreclosure conduct, and res judicata bars serial attacks on the same security deed and foreclosure rights, with privity encompassing successive mortgage actors asserting the same interest in the property.

For litigants and courts navigating foreclosure disputes in federal diversity, the case is a roadmap: use res judicata and the high IIED bar to demonstrate fraudulent joinder; if successful, the non-diverse trust is ignored and removal stands. Although non-precedential, the opinion aligns with established Eleventh Circuit doctrine and will likely carry persuasive weight in similar cases.