THE PRUDENTIAL INSURANCE COMPANY OF AMERICA et al v. J.P. MORGAN SECURITIES LLC et al
Filing
24
OPINION. Signed by Judge William H. Walls on 12/12/2012. (nr, )
NOT FOR PUBLICATION
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
:
PRUDENTIAL INSURANCE COMPANY :
OF AMERICA; PRUDENTIAL BANK AND :
TRUST; FSB; and THE GIBRALTAR LIFE :
INSURANCE COMPANY, LTD.,
:
:
Plaintiffs,
:
:
v.
:
:
J.P MORGAN SECURITIES, LLC; J.P. :
MORGAN MORTGAGE ACQUISITION :
CORPORATION;
CHASE
HOME
FINANCE,
LLC;
J.P.
MORGAN
ACCEPTANCE CORPORATION I; CHASE
MORTGAGE FINANCE CORPORATION;
CHASE
FUNDING,
INC.;
EMC
MORTGAGE, LLC; MASTER FUNDING,
LLC, and BEAR STEARNS ASSET
BACKED SECURITIES I, LLC.,
OPINION
Civ. No. 2:12-cv-03489 (WHW)
Defendants.
Walls, Senior District Judge
Plaintiffs, the Prudential Insurance Company of America, Prudential Bank and Trust,
FSB, and the Gibraltar Life Insurance Company, Ltd., (collectively “Plaintiffs”), move to
remand their state and federal law causes of action to the Superior Court of New Jersey, Law
Division, Essex County. ECF No. 8. Their claims include state claims of common law fraud,
fraudulent inducement, aiding and abetting fraud, negligent misrepresentation, and violations of
New Jersey’s civil RICO statute, as well as federal claims under the 1933 Securities Act. Under
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Federal Rule of Civil Procedure 78, this motion is decided without oral argument. Plaintiffs’
motion for remand is granted.
FACTUAL AND PROCEDURAL BACKGROUND
Between 2005 and 2007, Plaintiffs purchased over $523 million in residential mortgagebacked securities from Defendants J.P Morgan Securities, LLC, J.P. Morgan Mortgage
Acquisition Corporation, Chase Home Finance, LLC, J.P. Morgan Acceptance Corporation I,
Chase Mortgage Finance Corporation, Chase Funding, Inc., EMC Mortgage, LLC, Master
Funding, LLC, and Bear Stearns Asset Backed Securities I, LLC, (collectively “Defendants”).
Compl. ¶ 1. Defendants acted as, or were current successors to, or in control of, entities acting as
sponsor, underwriter, and/or depositor in the relevant offerings. Id. In April of 2012, Plaintiffs
filed a complaint in the Superior Court of New Jersey, Law Division, Essex County. Docket No.
L-3085-12. Plaintiffs claim that “as a result of Defendant’s systematic abandonment of their
disclosed underwriting guidelines, the default rates on the mortgage loans have soared and the
value of Prudential’s Certificates have plummeted.” Mot. to Remand 3. Plaintiffs allege
Defendants made false statements of material fact, that Defendants’ representations were false
and misleading, that Defendants knew it, and that Prudential detrimentally relied upon
Defendants’ misconduct. Compl. ¶¶ 1-2. The Complaint also alleges Plaintiffs’ purchase of
residential mortgage-backed securities certificates were reliant upon misrepresentations made by
Defendants. Id.
Plaintiffs filed four state law claims: 1) common law fraud and fraudulent inducement by
all Defendants; 2) aiding and abetting common law fraud against defendants J.P. Morgan
Acquisition, CHF, Chase Funding, CMFC, J.P. Morgan Acceptance, EMC, Master Funding, and
BSABS; 3) negligent misrepresentation against all Defendants; and 4) New Jersey Civil RICO
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claims alleging racketeering activity against all Defendants. Plaintiffs also filed two nonremovable federal claims under sections 11 and 12(a)(2) of the Securities Act of 1933. Compl. ¶¶
124-125, 127, 129, 143, 145.
Defendants moved to remove the proceedings from state court. ECF No. 1. Defendants
contend that this action is removable pursuant to 28 U.S.C. §§ 1452(a), 1334(b) because it is
“related to” pending bankruptcy proceedings arising under Title 11 of the United States Code.
Not. of Removal 1-2. Defendants also contend this action is removable pursuant to federal
question jurisdiction, 28 U.S.C. §§ 1441(a), 1331, because under the Edge Act, the suit arises out
of “international or foreign financial operations.” Id. 12 U.S.C. § 632.
Plaintiffs responded with this Motion to Remand, contending this Court lacks subjectmatter jurisdiction to hear their claims under either “related to” bankruptcy jurisdiction or the
Edge Act, and in the alternative, urging this Court to remand under the permissive abstention
provisions of 28 U.S.C. §§ 1331(c)(1) and 1452(b), available under the Bankruptcy Code. 1 ECF
No. 8.
STANDARD OF REVIEW
When confronted with a motion to remand, the removing party has the burden to
establish the propriety of removal. Boyer v. Snap-On Tools Corp., 913 F.2d 108, 111 (3d Cir.
1990), cert. denied, 498 U.S. 1085 (1991). And “removal statutes ‘are to be strictly construed
against removal, and all doubts resolved in favor of remand.’” Id. at 111 (citations omitted).
“Construing the removal statutes strictly . . . gives proper weight to the plaintiff’s choice of
forum.” Zelma v. United Online Commc’ns, Inc., No. 08-1030, 2008 WL 2625349, at *2 (D.N.J.
1
Plaintiffs make an additional argument that Defendants’ Removal Notice is legally
deficient because Defendants did not include the indemnification agreements upon which
Defendants relied in their Notice of Removal. Mot. to Remand 5-7. But any supposed procedural
defect has since been cured by Defendants inclusion of the relevant documents, Musla
Declaration Exs. 2-22, and Plaintiffs have abandoned this claim in their Reply Brief.
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June 27, 2008) (citations omitted). Indeed, where “there is any doubt as to the propriety of
removal, [the] case should not be removed to federal court.” Brown v. Francis, 75 F. 3d 860, 865
(3d Cir. 1996).
DISCUSSION
I.
“Related to” Bankruptcy Jurisdiction
Section 1452(a) of the Bankruptcy Code allows for removal from state court claims that
arise under Section 1334(b)’s “related to” jurisdiction. Under Section 1334(b) of the Bankruptcy
Code “the district courts shall have original but not exclusive jurisdiction of all civil proceedings
arising under title 11, or arising in or related to cases under title 11.” 28 U.S.C. § 1334(b)
(emphasis added). This section was “intended to grant comprehensive jurisdiction to the
bankruptcy courts so that they might deal efficiently and expeditiously with all matters
connected with the bankruptcy estate.” Pacor, Inc. v. Higgins, 743 F.2d 984, 994 (3d. Cir. 1984)
overruled on other grounds by Things Remembered, Inc. v. Petrarca, 516 U.S. 124 (1995).
In Pacor, the Third Circuit established a very broad standard for “related to” jurisdiction
and held that a state court proceeding need only “conceivably have any effect on the estate being
administered in bankruptcy.” 743 F.2d at 994 (emphasis in original) (internal citations omitted).
An action does not even need to be directly against a debtor’s property; “[a]n action is related to
bankruptcy if the outcome could alter the debtor's rights, liabilities, options, or freedom of action
(either positively or negatively) and which in any way impacts upon the handling and
administration of the bankrupt estate.” Id. However, the Supreme Court has cautioned that this
standard is not “limitless.” Celotex Corp. v. Edwards, 514 U.S. 300, 308 (1995). Rather, as the
Pacor court itself noted, “[t]here must be some nexus between the ‘related’ civil proceeding and
the title 11 case.” Pacor, 743 F.2d at 994. Indeed, even in Pacor the Third Circuit found there
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was no “related to” jurisdiction because there was no “automatic liability on the part of the
estate.” Id. Instead, all issues regarding possible liability needed to be resolved in a subsequent
third-party impleader action, which was too attenuated to confer jurisdiction. Id. at 995.
Several of the $523 million in residential mortgage backed securities purchased by
Plaintiffs were backed by entities that have filed bankruptcy petitions, or whose parent
corporations have filed bankruptcy petitions (henceforth the “Bankrupt Originators” 2). Not. of
Removal ¶ 15. Pending before various U.S. Bankruptcy Courts throughout the country are
twelve such bankruptcy proceedings. Id. ¶ 16. Eleven of the Bankruptcy Originators originated
nearly 40,000 loans in twelve of the twenty-three Offerings at issue. Opp. to Mot. 6.; Compl.
Exs. A-1 – A-4. Defendants have explicit indemnification clauses in the offering materials of ten
of the Bankrupt Originators. 3 Opp. To. Mot. 5
The indemnification clause with the Bankrupt Originator, Fremont, is typical of the
clauses found throughout the Bankrupt Originator’s Offering Materials with Defendants. Musla
Declaration 2. The Fremont indemnification clause states:
Fremont hereby agrees to indemnify and hold harmless Bear
Stearns . . . . against any and all losses, claims, expenses, damages
or liabilities to which the Indemnified Party may become subject,
under the 1933 Act or otherwise, including, without limitation,
with respect to disputes between the parties, insofar as such losses,
claims, expenses, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or
alleged untrue statement or alleged untrue statement of material
2
Defendants identify these Bankrupt Originators as including but not limited to:
“Accredited Home Lenders, Inc. (“Accredited”), Aegis Mortgage Corporation (“Aegis”),
Alliance BanCorp (“Alliance”), Choice Capital Funding, Inc. (“Choice Capital”),
Fieldstone Mortgage Company (“Fieldstone”), First NLC Financial Services, LLC (“First
NLC”), Fremont Investment and Loan (“Fremont”), Irwin Mortgage Corporation
(“Irwin”), MILA Incorporated (“MILA”), New Century Mortgage (“New Century”),
People’s Choice Home Loan, Inc. (“People’s Choice”), ResMAE Mortgage Corp.
(“ResMAE”), and United Financial Mortgage Corporation (“United”, n/k/a Alliance).
These Bankrupt Originators are: Accredited, Aegis, First NLC, Fremont, Irwin, MILA,
People’s Choice, ResMAE, Alliance (including entity f/k/a United).
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fact contained in the . . . Prospectus Supplement [including
Offering Materials], dated October 25, 2004.
Id. 11.
Defendants’ contract with the Bankrupt Originator Fieldstone also includes an agreement
to indemnify Defendants for attorney’s fees for legal expenses. The clause states that Fieldstone:
agrees to reimburse the Depositor and each such officer, director
and controlling person promptly upon demand for any legal or
other expenses reasonably incurred by and any of them in
connection with investigating or defending or preparing to defend
against any such loss, claim, damage, liability or action as such
expenses are incurred.
Id. 6,¶ 1a.
A.
The General Indemnification Clauses Do Not Confer “Related To”
Jurisdiction
1. Maturity of the Indemnification Clauses
All of the indemnification clauses in the offering materials of the various Bankrupt
Originators contain similar terms. See Id. 8-21. The Bankrupt Originators agree to indemnify the
Defendants against losses insofar as those losses arise from the Bankrupt Originator’s fault. The
indemnification clause with Fremont, for example, states that Fremont “agrees to indemnify and
hold harmless Bear Stearns . . . . against any and all losses . . . to which the Indemnified Party
may become subject . . . insofar as such losses, claims, expenses, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue
statement or alleged untrue statement of material fact contained in the . . . Prospectus
Supplement.” Id. Exh. 1 (emphasis added).
Plaintiffs argue the indemnification clauses found in the Bankrupt Originators’ contracts
do not provide a sufficient nexus to confer “related to” jurisdiction because they have not
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matured. Mot. To Remand 7-10. Plaintiffs claim they have not matured because the clauses are
contingent on future litigation to be enforced. Id.
Defendants counter that the indemnification clauses have already matured because they
are contractual. Opp. to Mot. 10. See Stitching Pensioenfonds ABP v. Countrywise Fin. Corp.,
447 B.R.302, 309 (C.D. Ca. 2010) (finding an indemnification agreement “‘based upon or
arising out of any act or omission on the part of [the Bankrupt Originator]’ . . . arose immediately
upon the filing of this lawsuit”); Allstate Insurance Co. v. Ace Securities Corp. 2011 WL
3628852, at *4 (S.D.N.Y Aug. 17, 2011) (finding, without examination of the indemnification
language that the “rights of indemnification arose immediately upon the filing of the lawsuit,
covering the costs of litigation regardless of whether Defendants are found liable.”).
But “not all indemnification agreements between a defendant in a civil action and a nonparty bankrupt debtor create ‘related to’ jurisdiction . . . . Only when the right to indemnification
is established and is not contingent on the filing of a separate action.” Steel Workers Pension
Trust, v. Citigroup, Inc. et. al, 295 B.R. 747, 753 (E.D. Penn. July 17, 2003). Instead, one must
look to see whether the “debtor’s liability automatically triggered when the purported related
action against the party seeking indemnification begun.” Id.
Defendants argue that because Steel Workers involved a common law indemnification
claim, it has no bearing here. Opp. To. Remand 9. That is not so. To determine whether a
contractual indemnification agreement is “contingent on the filing of a separate action,” one must
look to the text of the agreement. Id; see, e.g., State of New Jersey, Dep’t of Treasury, Div. of
Investment v. Fuld, 2009 WL 1810350, at *4 (D. NJ June 25, 2009) (finding “related-to”
jurisdiction after examination of the indemnification agreement which stated, in part, the costs of
any suit “shall . . . be paid by the Corporation in advance of the final disposition of such action.”)
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An examination of the identification clauses in the present case reveals that the Bankrupt
Originator’s liability did not accrue upon the filing of this suit.
The suit before this Court involves alleged untrue statements by Defendants; it does not
involve alleged untrue statements by the Bankrupt Originators. While Defendants may wish to
claim that the fraud on behalf of the Bankrupt Originators underlies the Plaintiff’s complaint, a
lawsuit establishing the Bankrupt Originators’ liability is not before this court. A separate suit
would be required to establish whether the Bankrupt Originators’ indemnification clause accrued
“insofar as such . . . liabilities . . . arise out of or are based upon any untrue statement or alleged
untrue statement or alleged untrue statement of material fact contained in the . . . Prospectus
Supplement.” Musla Decl. 11, Exhibit 1.
In Federal-Mogal Global, Inc., the Third Circuit contemplated whether thousands of state
court personal-injury and wrongful-death claims asserted against non-debtor companies could be
considered “related to” the bankruptcy estate of a potential indemnifier that initially
manufactured the defective product. 300 F.3d 368 (2002). The Third Circuit held the claims
were not sufficiently related since “any indemnification claims that the Friction Product
Defendants might have against Debtors have not yet accrued and would require another lawsuit
before they could have an impact on [the] bankruptcy proceeding.” Id.at 382. Similarly, even if
the fraud originated with the Bankrupt Originators, like the defective products in Federal-Mogal
may have originated with the manufacturers, the indemnification agreements did not accrue upon
the filing of the present suit. Like in Pacor, this suit does not establish “automatic liability.” 743
F.2d 984, 994. As such, the indemnification clauses do not confer “related to” jurisdiction in this
case.
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2. Contingency of the Indemnity Clauses
Defendants also argue that even though the Bankrupt Originators’ liability may not be
established, “related to” jurisdiction is nonetheless proper. Opp. to Remand 7-12. Defendants
refer to Belcufine v. Aloe, 112 F.3d 633 (3d Cir. 1997) and In re Allegheny Health, Education
and Research Foundation, 383 F.3d 169 (3rd Cir. 2004), where the Third Circuit allowed
indemnification claims that were “contingent” to confer “related to” jurisdiction. Id. at 176. But
these cases are distinguishable.
In Belcufine, the Third Circuit considered whether employee indemnification claims
against corporate managers under Pennsylvania law, as opposed to the bankrupt entity itself,
conferred “related to” jurisdiction. The Belcufine employees argued that the indemnification
claims did not impact the debtor’s estate because they were “contingent” on a finding of the
indemnifier’s liability. The Third Circuit concluded “[b]ased on the broad reach of the term
‘related to’ . . . at a minimum, the existence of this indemnification claim demonstrated that the
employees’ claims against the [corporate managers] could conceivably have an effect on the
bankruptcy estate.” Id. at 636. But in that case, the “contingency” was whether the corporate
manager’s liability, if confirmed in the suit, conceivably impacted the bankruptcy estate. In
contrast, upon the resolution of the present suit – assuming Defendants are found to have acted
fraudulently – there will still be an outstanding issue as to whether the Bankruptcy Originators in
turn were liable for that fraud. This case is unlike Belcufine, and is too attenuated from the
bankruptcy estate to confer “related to” jurisdiction.
Defendants also argue that the Bankrupt Originator’s liability need not be resolved in
order to confer “related to” jurisdiction. Opp. To Remand 7. In In re Allegheny Health, Educ.
and Research Foundation, the Third Circuit held, “[t]he existence of subject matter jurisdiction
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is determined before, not after, adjudication of the merits and depends on the nature, not the
validity of the plaintiff’s claim.” 383 F.3d 169, 176 (3rd Cir. 2004). There, suit was brought
against the buyer of a Chapter 11 debtor’s assets concerning debts incurred after the asset
purchase agreement. Id. In that case, the buyer sought indemnification directly from the debtor
under certain contractual terms of the purchase agreement. Id. Resolution of the suit would
determine whether or not the debtor was liable to the debt purchaser, directly implicating the
debtor’s estate. Id. The Third Circuit held liability need not be definitively established against the
indemnifier if, upon finding of indemnification, the bankruptcy estate would be directly affected.
Id. But here, as established above, resolution of the present suit does not establish the liability of
the Bankruptcy Originators. Hence, Allegheny is inapposite because subject matter jurisdiction
does not arise in the first instance and “related to” jurisdiction is not implicated.
B.
The Legal Expense Indemnification Agreement Does Not Confer To “Related
To” Jurisdiction
Defendants also claim that the agreement with Bankrupt Originator Fieldstone
indemnifying Defendants for legal expenses gives rise to “related to” jurisdiction. The
indemnification agreement states that Fieldstone “agrees to reimburse the Depositor and each
such officer, director and controlling person promptly upon demand for any legal or other
expenses reasonably incurred by any of them in connection with investigating or defending or
preparing to defend against any such loss, claim, damage, liability or action as such expenses are
incurred.” Musla Decl. Ex. 6, ¶ 1a. But further investigation of this indemnification agreement
reveals that Fieldstone is only liable for “any such loss”,“insofar as such losses, claims, damages,
or liabilities . . . arise out of or are based in whole or in part upon any untrue statement or alleged
untrue statement of material fact contained in the Fieldstone Information.” Id. Thus, the clause
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would mature in a suit to establish Fieldstone’s liability. Here, the suit does not concern the nonparty Fieldstone’s liability, it concerns Defendants’ liability. Like the indemnification clauses
above, this clause did not accrue upon the filing of the present suit and “related to” jurisdiction
does not arise. 4
II.
Abstention
Plaintiffs urge this Court to exercise its equitable powers and abstain from this case by
remanding to state court. Mot. for Remand 17-20. This Court determines that even if “related to”
jurisdiction were proper, abstention would be appropriate. While federal courts have a wide grant
of jurisdictional power to settle bankruptcy estates, federal courts may decline jurisdiction over
actions properly removed under Section 1334(b). Section 1452 permits the District Court to
“remand such claim or cause of action on any equitable ground.” 28 U.S.C. § 1452(b). And
Section 1334(c)(1) provides for permissive or discretionary abstention, permitting a district court
to abstain in the interests of justice and comity or out of respect for state law:
Nothing in this section prevents a district court in the interest of
justice, or in the interest of comity with State courts or respect
for state law, from abstaining from hearing a particular
proceeding arising under title 11 or arising in or related to a
case under title 11.
28 U.S.C. § 1334(c)(1).
The considerations relevant to determine the appropriateness of equitable
remand and permissive abstention under Sections 1452(b) and 1334(c)(1) are
essentially identical. See Balcor, 181 B.R. at 788; In re Joshua Slocum, Ltd., 109
4
Plaintiffs also argue “related to” jurisdiction does not arise because “none of Defendants’
purported contingent indemnity claims will actually result in a meaningful distribution from any
bankruptcy estate.” Mot. To Remand 11. Because this court finds the indemnification clauses do
not give rise to “related to” jurisdiction, we need not reach the merits of these arguments.
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B.R. 101, 105 (E.D. Pa. 1989). “Among the factors to be considered by courts in
making a decision whether to abstain and remand are the following:
(1) the effect on the efficient administration of the bankruptcy
estate;
(2) the extent to which issues of state law predominate;
(3) the difficulty or unsettled nature of the applicable state law;
(4) comity;
(5) the degree of relatedness or remoteness of the proceeding to the
main bankruptcy case;
(6) the existence of the right to a jury trial; and
(7) prejudice to the involuntarily removed defendants.
In re Donington, Karcher, Salmond, Ronan & Rainone, P.A., 194 B.R. 750, 760 (D.N.J. 1996)
(internal citations omitted). Upon review of the factors, remand is appropriate here.
First, judicial economy does not dictate that this Court hear this action. Defendants argue
that because “this case may conceivably affect the efficient administration of [the Bankrupt
Originator’s] estates because of the potential liability and costs, including attorneys’ fees,
covered by the indemnification agreements” this matter should remain in federal court. Opp. to
Remand 19. But none of the pending bankruptcies are before this Court and the bankruptcy
proceedings of the Bankrupt Originators are being handled by a variety of federal bankruptcy
courts throughout the country. See Not. of Removal 5. Thus, regardless of whether this Court or
the state court establishes liability, subsequent costs, or “conceivabl[e] affect[s],” efficacy would
be the same. Opp. to Remand 19.
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Second, state law issues predominate. Plaintiffs filed four state law claims, including two
for fraud, one for negligent misrepresentation, and one under New Jersey’s state RICO statute.
While Plaintiffs also filed two causes of action under the federal 1933 Securities Act, these
federal claims are generally non-removable when filed in state court, highlighting Congress’
comfort with state court adjudication of them. See 15 U.S.C. § 77v(a). State claims predominate.
Third and fourth, while Plaintiff’s state law claims for fraud and negligent
misrepresentation are fairly routine, Plaintiff points out that New Jersey’s RICO count is
significantly different from the comparable federal RICO statute. See State v. Ball, 141 N.J. 142,
160-162 (1995) (outlining differences between the New Jersey RICO and federal RICO laws);
see also Emcore Corp. v. PricewaterhouseCoopers LLP, 102 F. Supp. 2d 237, 254-55 (D.N.J.
2000). The complexity of the state law RICO claim and comity considerations favor remand.
While federal courts have, on occasion, presided over New Jersey RICO cases, Opp. to Remand
20, as a general matter state courts are better equipped to handle their own particular laws.
“Needless decisions of state law should be avoided both as a matter of comity and to promote
justice between the parties, by procuring for them a surer-footed reading of applicable law.”
United Mine Workers of America v. Gibbs, 383 U.S. 715, 726 (1966).
Fifth, this case is remote relative to the proceedings of the main bankruptcy cases. The
liabilities of the Bankrupt Originators are not going to be decided here. What is more,
Defendants have failed to timely file claims against the Bankrupt Originator’s Bankruptcy
estates, and the claims bar dates in many of these cases have passed, making recovery unlikely.
Grossman Decl. Exs. 2-6, 14.
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Finally, the sixth and seventh factors, the right to jury trial and prejudice to the
involuntarily removed defendants, are inapplicable, as recognized by all parties. Mot. to
Remand, FN 6 ; Opp. to Remand, 21.
In sum, abstention is appropriate. By so concluding, this Court joins several federal
courts in reaching this conclusion under similar facts. Charles Schwab Corp. v. BNP Paribas
Secs., No. C 10-104030, 2011 WL 724696, at *2-4 (N.D. Cal. Fed. 23, 2011); Fed. Home Loan
Bank of San Francisco v. Deutsche Bank Secs.,Inc., Nos 10-3039, 2010 WL 5394742, at *11
(N.D. Cal. Dec.20, 2010); Fed. Home Loan Bank of Seattle v. Barclays Capital, Inc. No. C100139, 2010 WL 3662345, at *7 (W.D. Wash. Sept. 1, 2010); Fed. Home Loan Bank of Seattle v.
Deutsche Bank Secs., Inc. 736 F. Supp. 2d 1283, 1290-91 (W.D. Wash. 2010).
III.
The Edge Act
Defendants argue this Court has subject matter jurisdiction over this case under the Edge
Act. 12 U.S.C. §632; Opp. to Removal 24. State actions involving international banking can be
designated as “federal question” actions pursuant to the Edge Act if an action involves a
“corporation organized under the laws of the United States,” and “arises out of transactions
involving international or foreign banking, or banking in a dependency or insular possession of
the United States, or out of other international or foreign financial operations.” 12 U.S.C. § 632.
To meet the first requirement Defendants assert there are two national banks, “organized
under the laws of the United States” relevant to this case. 12 U.S.C. § 632. Both parties agree
Plaintiff Prudential Bank is a federally chartered bank. Opp. to Removal 25; Reply to Remand 9.
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Defendants also argue that the successor by merger to Defendant Chase Home Finance, LLC –
JP Morgan Chase Bank, N.A. – is a federally chartered bank. Opp. to Removal 25. 5
Second, Defendants claim the “action arises out of transactions involving international
or foreign banking” because one of the twenty-three securitizations at issue, BSABS 2005-FRI,
was bought by Plaintiff, The Gibraltar Life Insurance Company Co., Ltd., a life insurance
company formed under the laws of Japan. 12 U.S.C. § 632; Opp. to Removal 25.
However, the purchase of BSABS 2005-FRI did not involve defendant Chase Home
Finance or its successor in interest JP Morgan Chase Bank. Compl. ¶¶ 15-16 & Ex. B at B-2.
Chase Home Finance was only involved in the purchase of three securitizations CFLAT 2004AQ1, CHASE 2007-A1, CHASE 2007-A2 and was not involved in the purchase of BSABS
2005-FRI. Compl. ¶ 24 & Ex. A at A-2.
This Court agrees with Plaintiffs that because the national bank involved – JP Morgan
Chase Bank – does not have an interest in the claim arising out of the transactions involving
international or foreign banking – BSABS 2005-FR1 – Edge Act jurisdiction is not appropriate.
Mot. to Remove 22-24. See Allstate Insurance Co. v. CitiMortgage, Inc., No. 11 Civ. 1927 2012
WL 967582 at *3 (S.D.N.Y March 13, 2012) (finding no Edge Act jurisdiction since the national
bank “was not a party to the . . . securitization, which is the only securitization that contained
territorial mortgages”); Societe d’ Assurance De L’Est SPRL v. Citigroup Inc., No. 10 Civ. 4754
2011 WL 4056306 at *4 (S.D.N.Y Sept. 13, 2011) (“Jurisdiction under the Edge Act ‘will lie
only if [a national bank defendant] has potential liability to the plaintiff.”) (quoting
Papadopoulos v. Chase Manhattan Bank, N.A., 791 F. Supp. 72, 74 n.4 (S.D.N.Y. 1990)
(granting a motion to dismiss for lack of subject matter jurisdiction).
5
Plaintiffs question whether this Court can consider the status of an unnamed defendant.
Mot. to Remove 22 n.1. Because we reach that the Edge Act does not confer jurisdiction on
alternative grounds, we need not reach the merits of this challenge.
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Defendants rely upon a Southern District of New York case which in dicta stated that it
was “not convinced that the Edge Act requires a perfect match between the particular entity
involved in the territorial transaction and the party against whom the claim is brought.” Am. Int'l
Group, Inc. v. Bank of Am. Corp., 820 F. Supp. 2d 555, 557-58 (S.D.N.Y. 2011) motion to certify
appeal granted, reconsideration denied, 11 CIV. 6212 BSJ, 2011 WL 6778473 (S.D.N.Y. Dec.
20, 2011).
But we agree with the majority of courts that Edge Act jurisdiction does not arise “merely
because there was a federally chartered bank involved, there were banking-related activities, and
there were foreign parties.” Societe d'Assurance de l'Est SPRL v. Citigroup Inc., 2011 WL
4056306 (S.D.N.Y. Sept. 13, 2011) (quoting Bank of N.Y. v. Bank of Am., 861 F.Supp. 225, 232
(S.D.N.Y.1994)) (internal quotation marks and citation omitted). To resay, there was no
connection between the federal chartered bank and banking-related activities involving a foreign
party, so Edge Act jurisdiction is not appropriate.
IV.
Attorney’s Fees
As a final matter, Plaintiffs have requested attorney’s fees, costs, and expenses. Mot. to
Remand 30. Pursuant to 28 U.S.C. § 1447(c), “[a]n order remanding the case may require
payment of just costs and any actual expenses, including attorney fees, incurred as a result of the
removal.” Awards are only proper under §1447(c) if “the removing party lacked an objectively
reasonable basis for seeking removal.” Martin v. Franklin Capital Corp., 546 U.S. 131, 141
(2005). Defendants were reasonable seeking removal. Although “related to” jurisdiction is not
appropriate here, another district court concluded differently under similar facts. There, the
district court concluded an indemnification agreement of a bankrupt non-party conferred “related
to” jurisdiction. See Stitching Pensioenfonds ABP v. Countrywise Fin. Corp., 447 B.R.302, 309
(C.D. Ca. 2010). Plaintiffs’ request for attorney’s fees, costs, and expenses is denied.
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CONCLUSION
Plaintiffs’ motion for remand is granted. Plaintiffs’ request for attorney’s fees is denied.
December 12, 2012
s/ William H. Walls
United States Senior District Judge
17
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