Allstate Insurance Company et al v. Credit Suisse Securities (USA) LLC et al
Filing
21
MEMORANDUM AND ORDER granting 9 Motion to Remand to State Court filed by Plaintiffs: For the reasons set forth within, plaintiffs' motion to remand the action to state court is granted. (Signed by Judge Naomi Reice Buchwald on 10/19/2011) Copies Mailed By Chambers. (ab)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
----------------------------------------X
ALLSTATE INSURANCE COMPANY, ALLSTATE LIFE
INSURANCE COMPANY, ALLSTATE BANK (f/k/a
ALLSTATE FEDERAL SAVINGS BANK), and
KENNETT CAPITAL, INC.,
MEMORANDUM AND ORDER
Plaintiffs,
11 Civ. 2232 (NRB)
- against CREDIT SUISSE SECURITIES (USA) LLC,
CREDIT SUISSE FIRST BOSTON MORTGAGE
SECURITIES CORP., ASSET BACKED SECURITIES
CORPORATION, and DLJ MORTGAGE CAPITAL,
INC.,
Defendants.
----------------------------------------X
NAOMI REICE BUCHWALD
UNITED STATES DISTRICT JUDGE
Plaintiffs
brought
this
action
in
the
New
York
State
Supreme Court of New York County on February 28, 2011, alleging
state
common
law
claims
of
fraud
and
negligent
misrepresentation. Defendants removed the action to this Court
on March 31, 2011, pursuant to 28 U.S.C. §§ 1334(b), 1441, 1446,
and 1452(a). On May 2, 2011, plaintiffs moved to remand the case
back to state court, or alternatively for the Court to abstain
from
exercising
§§ 1334(c)(1)-(2)
incurred
as
§ 1447(c).
a
jurisdiction
and
result
1452(b),
of
the
pursuant
and
for
removal
to
costs
pursuant
28
and
to
U.S.C.
expenses
28
U.S.C.
For the reasons stated below, plaintiffs’ motion to remand
is granted and request for costs and expenses is denied.
BACKGROUND1
Plaintiff Allstate Insurance Company is a company formed
under the laws of Illinois, with its principal place of business
in Northbrook, Illinois, and licensed to do business in New
York.
Plaintiff
Illinois
Allstate
corporation,
Life
while
Insurance
plaintiff
Company
Allstate
is
also
Bank
is
an
a
federally chartered thrift institution registered in Illinois.
Plaintiff
Kennett
Capital
is
a
Delaware
corporation.
All
plaintiffs are subsidiaries of The Allstate Corporation.
Defendants, all part of the Credit Suisse corporate family
and formed in Delaware with their principal places of business
in New York, sponsored, sold, underwrote, or issued residential
mortgage-backed
plaintiffs.
sponsor
or
securities
Defendant
seller
for
(the
“Certificates”)
DLJ
Mortgage
all
of
the
Capital,
relevant
purchased
Inc.
acted
offerings
of
by
as
the
Certificates. Defendant Credit Suisse Securities (USA) LLC, or
its
predecessor
Credit
Suisse
First
Boston
LLC,
acted
as
underwriter for the Certificates, while defendants Credit Suisse
First
Boston
Mortgage
Securities
1
Corp.
and
Asset
Backed
The background is drawn from the Complaint, the Notice of Remand,
Plaintiffs’ Memorandum of Law in Support of Motion to Remand to State Court
and exhibits thereto, Defendants’ Memorandum of Law in Opposition and
exhibits thereto, and Plaintiffs’ Reply Memorandum of Law and exhibits
thereto.
2
Securities
Corporation
were
the
registrants
for
certain
registration statements filed with the SEC and issued certain of
the Certificates. Together, defendants purchased mortgage loans
from third-party originators, transferred them to trusts, and
then issued the Certificates, which represented interests in the
mortgage loans held by the trusts.
The Certificates were grouped in tranches according to the
level of risk associated with the underlying mortgage loans.
Investors
must
rely
on
the
issuers’
registration
statements,
prospectuses and supplements, terms sheets, and other written
materials (the “Offering Materials”) to learn about such risk;
issuers,
in
turn,
originators,
which
Defendants
sold
rely
on
files
the
the
are
loan
files
unavailable
Certificates
to
developed
to
various
by
investors.
investors
--
including plaintiffs, who purchased over $231 million worth of
the Certificates, which were typically rated AAA/Aaa or AA/Aa.
Plaintiffs allege that defendants’ failure to disclose that
the loans underlying the Certificates constituted “a toxic mix”
and were “highly likely to default” caused a “drastic drop in
the value of the Certificates,” leading to significant losses
for plaintiffs. (Compl. at ¶¶ 1, 5.) The complaint includes
claims
for
common
law
fraud,
negligent
misrepresentation,
defendants
knew
or
should
fraudulent
based
have
3
on
known
the
that
inducement,
and
allegation
that
they
were
making
materially
false
or
misleading
statements
or
omissions
in
connection with the Certificates.
On March 31, 2011, defendants removed the action to this
Court, asserting that the Court has “related to” jurisdiction
under
28
U.S.C.
§
1334(b)
because
defendants
may
have
indemnification or contribution claims against three originators
who are currently in bankruptcy proceedings: Finance America,
LLC (“Finance America”),2 New Century Mortgage Corporation (“New
Century”),
and
Taylor,
Bean
&
Whitaker
Mortgage
Corporation
(“TBW”) (collectively, the “Bankrupt Originators”). The Bankrupt
Originators were responsible for approximately 7.4% of the total
value
of
the
loans
in
the
securitizations
at
issue;
the
remainder was contributed by a number of other originators not
named in the Notice of Removal. Defendants assert that, based on
written agreements between them, “the Bankrupt Originators would
owe
certain
of
the
defendants
indemnity
and/or
contribution
obligations that could affect the debtors’ property in the event
a loss is sustained by Defendants in connection with this action
with respect to the Certificates.” (Notice of Removal ¶ 18.)
BNC Mortgage LLC (“BNC”), the ultimate successor to Finance
America,
filed
reorganization
a
on
petition
January
in
9,
this
2009.
2
district
Defendants
for
Chapter
have
filed
11
no
Finance America was the originator of certain mortgages underlying the
Certificates. It merged with BNC Mortgage, Inc., and the entity later
converted to a limited liability company, which is now in bankruptcy.
4
proofs of claim in that proceeding, and the bar date for claim
filing was September 22, 2009.
New
Century
instituted
its
Chapter
11
reorganization
on
April 2, 2007 in the District of Delaware. The bar date for any
proofs of claim in that proceeding was August 31, 2007, and,
prior to that date, defendants did file certain claims, which
have
since
been
settled.
New
Century’s
liquidation
plan
was
confirmed on November 20, 2009, and the proceeding is currently
in the post-confirmation stage.
TBW filed for reorganization under Chapter 11 in the Middle
District of Florida on August 24, 2009. Defendants filed a proof
of claim in that proceeding on June 11, 2010, four days before
the bar date. That claim was based on the agreement pursuant to
which defendants purchased mortgage loans from TBW, though the
claim did not assert indemnification rights.
DISCUSSION
I.
Legal Standard
Any civil action brought in state court may be removed to
the federal district court that embraces the state court only if
the federal courts have original jurisdiction over the matter.
See
28 U.S.C. § 1441(a). When challenged, the party seeking
removal bears the burden of establishing this jurisdiction. See
In
re
Refco,
Inc.
Sec.
Litig.,
628
F.
Supp.
2d
432,
437
(S.D.N.Y. 2008) (citing In re WorldCom, Inc. Sec. Litig., 293
5
B.R. 308, 316 (S.D.N.Y. 2003)). On a motion for remand, we “must
construe
all
disputed
questions
of
fact
and
controlling
substantive law in favor of the plaintiff,” In re NASDAQ Mkt.
Makers Antitrust Litig., 929 F. Supp. 174, 178 (S.D.N.Y. 1996),
and, “out of respect for the limited jurisdiction of the federal
courts and the rights of states, we must resolve any doubts
against removability.” California v. Atl. Richfield Co. (In re
Methyl Tertiary Butyl Ether (“MTBE”) Prods. Liab. Litig.), 488
F.3d
112,
124
(2d
Cir.
2007)
(internal
quotation
marks
and
alterations omitted).
II.
Bankruptcy Jurisdiction Under 28 U.S.C. § 1334(b)
A.
The Contours of “Related To” Jurisdiction
District
courts
“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). Litigation is “related to” a bankruptcy proceeding
“if the action’s ‘outcome might have any conceivable effect on
the bankrupt estate.’” Parmalat Capital Fin. Ltd. v. Bank of Am.
Corp., 639 F.3d 572, 579 (2d Cir. 2011) (quoting In re Cuyahoga
Equip. Corp., 980 F.2d 110, 114 (2d Cir. 1992)).
“Conceivable
effects”
typically
manifest
themselves
by
altering “[t]he amount of property available for distribution to
the
creditors
of
a
bankruptcy
estate
or
the
allocation
of
property among such creditors.” In re Kolinsky, 100 B.R. 695,
6
702 (S.D.N.Y. 1989), cited in Am. Int’l Specialty Lines Ins. Co.
v. Towers Fin. Corp., 198 B.R. 55, 61 (S.D.N.Y. 1996). A single
bankruptcy being affected in this way is sufficient to support
“related to” jurisdiction.3 See, e.g., City of Ann Arbor Emps.’
Ret. Sys. v. Citigroup Mortg. Loan Trust Inc., 572 F. Supp. 2d
314 (E.D.N.Y. 2008) (finding “related to” jurisdiction based on
one originator’s bankruptcy when the underlying complaint made
allegations against five originators).
Contingent outcomes can satisfy the “conceivable effects”
test. The outcome need not be certain; the possibility of an
effect is sufficient. See Parmalat, 639 F.3d at 579 (concluding
that the test was satisfied because a possible outcome of the
underlying action would augment a bankruptcy estate); see also
generally Pacor, Inc. v. Higgins, 743 F.2d 984, 994 (3d Cir.
1984)
(“The
usual
articulation
of
the
test
for
determining
whether a civil proceeding is related to bankruptcy is whether
the outcome of that proceeding could conceivably have any effect
on the estate being administered in bankruptcy.”).
Yet “related to” jurisdiction is still cabined. Indeed, the
Supreme Court has admonished that “a bankruptcy court’s ‘related
3
Plaintiffs’ emphasis on the insignificance of the size of the loans whose
genesis is the Bankrupt Originators relative to the total value of the
securitizations that form the basis of the underlying proceeding is thus
misplaced. The loans’ relationship to the primary action is not before the
Court. Rather, our focus is their relationship to the bankruptcies. See
Allstate Ins. Co. v. Ace Sec. Corp., No. 11 Civ. 1914, 2011 U.S. Dist. LEXIS
91989, at *18 (S.D.N.Y. Aug. 16, 2011).
7
to’ jurisdiction cannot be limitless.” Celotex Corp. v. Edwards,
514 U.S. 300, 308 (1995); see also In re Turner, 724 F.2d 338,
341 (2d Cir. 1983) (“. . . Congress must have intended to put
some limit on the scope of ‘related to’ jurisdiction.”). Thus,
any contingencies cannot be too far removed; too many links in
the chain of causation before the bankruptcy estate is affected
may preclude “related to” jurisdiction. See Pacor, 743 F.2d at
995 (finding that, absent an “automatic creation of liability”
against the bankrupt, the underlying action was too far removed
from the bankruptcy to be related).
B.
Defendants’
Indemnification
Agreements
Relevant to “Related To” Jurisdiction
Are
Defendants have contractual rights to indemnification from
each of the Bankrupt Originators. (See Decl. of Katherine D.
Janson (“Janson Decl.”), Ex. D, Purchase, Warranties and Interim
Servicing
Agreement
with
Finance
America
(“Finance
America
Purchase Agreement”) 57 (Dec. 1, 2003); id., Ex. E, Purchase,
Warranties
and
Interim
Servicing
Agreement
with
New
Century
(“New Century Purchase Agreement”) 61 (July 1, 2005); id., Ex.
G,
Indemnification
Indemnification
and
Contribution
Agreement”)
4-5
Agreement
(Aug.
29,
with
2006).)
TBW
(“TBW
Facially,
these agreements cover liability defendants may face as a result
of this action. (See, e.g., Finance America Purchase Agreement
30 (“All information supplied by, on behalf of, or concerning
8
the
Mortgagor
contain
any
is
true,
statement
accurate
that
and
is
or
complete
will
be
and
does
inaccurate
not
or
misleading in any material respect[.]”); New Century Purchase
Agreement 33 (same); TBW Indemnification Agreement 4 (providing
indemnification
statement
of
for
any
“any
untrue
material
fact
statement
or
alleged
contained
in
the
untrue
Prospectus
Supplement [or any amendments thereto], or aris[ing] out of or
. . .
based
upon
the
omission
or
alleged
omission
to
state
therein a material fact required to be stated therein”).
Plaintiffs
do
not
challenge
the
validity
of
these
agreements or assert that they are otherwise inoperable. Rather,
they
argue
that
the
likelihood
that
the
indemnification
agreements will be implicated by their suit against defendants
is too remote to be the basis of withdrawal. Specifically, they
contend
that
defendants
will
only
have
claims
against
the
bankruptcy estates if the defendants are found liable in the
underlying
action.
suggestion
that
Plaintiffs
they
may
bolster
prove
this
defendants’
argument
with
liability
the
without
ever implicating a false or misleading statement made by the
Bankrupt Originators.
These contentions do not by themselves defeat “related to”
jurisdiction. An outcome’s contingency does not preclude it from
having a “conceivable effect” on a bankruptcy proceeding. See
Parmalat, 639 F.3d at 579. The Bankrupt Originators’ possible
9
indemnification
obligation
should
the
defendants
lose
the
underlying action is a potentiality that has previously been
found to constitute a “conceivable effect.”4 See, e.g., Five Mile
Capital II SPE ESH LLC v. Cerberus Capital Mgmt. (In re Extended
Stay Inc.), 435 B.R. 139, 150 (S.D.N.Y. 2010); Abbatiello v.
Monsanto Co., No. 06 Civ. 266, 2007 U.S. Dist. LEXIS 19790, at
*13-14 (S.D.N.Y. Mar. 5, 2007).
C.
Defendants
Have
Not
Asserted
Claims
for
Indemnification of the Underlying Action Against
the Bankrupt Originators
However,
the
potential
applicability
of
indemnification
provisions is not by itself the equivalent of an effect on an
indemnifier’s bankruptcy proceedings. The only way defendants’
indemnification
claims
against
the
Bankrupt
Originators
can
actually affect the allocation of property among the estates’
creditors is if defendants have asserted their claims against
the
bankruptcy
estates.
See
Fed.
R.
Bankr.
P.
3002(a)
(“An
unsecured creditor . . . must file a proof of claim or interest
for the claim or interest to be allowed . . . .”). Although
defendants did file proofs of claim in the New Century and TBW
bankruptcies,
those
claims
did
not
pertain
to
the
indemnification to which defendants now claim they are entitled.
To
date,
no
proofs
of
claim
4
asserting
defendants’
To the extent defendants can utilize the provisions of their indemnification
agreements to claim legal fees associated with defending this action, the
outcome itself may in fact be irrelevant.
10
indemnification rights against any of the Bankrupt Originators
relating
to
the
underlying
action
have
been
brought
to
the
Court’s attention.5
Defendants cannot remedy this defect in their removal by
filing the necessary proofs of claim now. In order to “provid[e]
the
debtor
and
its
creditors
with
finality,”
the
bankruptcy
court must establish a bar date beyond which no further proofs
of claim will be accepted. In re Enron Creditors Recovery Corp.,
370 B.R. 90, 94 (Bankr. S.D.N.Y. 2007); see also Fed. R. Bankr.
P. 3003(c)(3). The bar date has passed in each of the relevant
bankruptcies. See Order Establishing the Deadline for Proofs of
Claim, In re Lehman Bros. Holdings Inc., No. 08-13555, docket
no. 4271, at 2 (Bankr. S.D.N.Y. July 2, 2009) (bar date of
September 22, 2009);6 Order Establishing Bar Dates for Filing
Proofs of Claim, In re New Century TRS Holdings Inc., No. 0710416, docket no. 1721, at 3 (Bankr D. Del. June 28, 2007) (bar
date of August 31, 2007); Order Establishing Deadline for Filing
Proofs of Claim, In re Taylor, Bean & Whitaker Mortgage Corp.
(“TBW”), No. 09-bk-7047, docket no. 1067, at 2 (Bankr. M.D. Fla.
Feb. 22, 2010) (bar date of June 15, 2010).
5
Defendants’
failure
to
file
any
proofs
of
claim
for
potential
indemnification differentiates this case from those they cite. See, e.g.,
Lone Star Fund V (US) v. Barclays Bank PLC, 594 F.3d 383, 386 n.2 (5th Cir.
2010); Stichting Pensioenfonds ABP v. Countrywide Fin. Corp., 447 B.R. 302,
307 (C.D. Cal. 2010); Ann Arbor, 572 F. Supp. 2d at 318-19.
6
BNC’s liquidation is being jointly administered with that of Lehman Brothers
Holdings Inc.
11
To
avoid
the
bar
dates,
defendants
argue
that,
because
plaintiffs did not bring the underlying action until after the
bar dates had passed, their failure to assert indemnification
claims is excusable under Federal Rule of Bankruptcy Procedure
9006(b)(1), which permits a court to allow a time-barred act
“where the failure to act was the result of excusable neglect.”
To the contrary, defendants cannot rely on this rule to overcome
the passage of the bar dates. An indemnification right “arises
at the time the indemnification agreement is executed,” and it
constitutes a claim under the Bankruptcy Code even if the act
giving rise to indemnification has not yet occurred. Olin Corp.
v. Riverwood Int’l Corp. (In re Manville Forest Prods. Corp.),
209
F.3d
125,
128-29
(2d
Cir.
2000);
see
also
11
U.S.C.
§
101(5)(A) (defining a “claim” as a “right to payment, whether or
not such right is . . . fixed [or] contingent”). As a result,
defendants
could,
and
should,
have
asserted
their
indemnification claims prior to the bar dates. See P.A. Props.,
Inc. v. B.S. Moss’ Criterion Ctr. Corp., No. 02 Civ. 4900, 2004
U.S.
Dist.
LEXIS
25623,
at
*37-38
(S.D.N.Y.
Dec.
23,
2004)
(holding that, because indemnity agreements create contingent
rights to payment upon their execution, claims based on such
agreements must be asserted prior to the bar date).
More importantly, defendants have not pointed to any court
that
has
excused
their
failure
12
to
file
proofs
of
claim
for
indemnification. Nor is it appropriate for a court to speculate
on
the
viability
of
any
such
future
attempt
to
have
those
failures excused. See Allstate Ins. Co. v. Merrill Lynch & Co.,
No.
11
Civ.
2280,
slip
op.
at
9
(S.D.N.Y.
Aug.
15,
2011).
Moreover, the very necessity of that litigation suggests that
the current action is too far removed to be jurisdictionally
“related to” the bankruptcies. Cf. Pacor, 743 F.2d at 995-96
(denying
“related
to”
jurisdiction
because
a
separate
legal
action would need to follow the primary action in order to have
an effect on the bankruptcy).
Defendants’ attempt to circumvent the need to appeal to
“excusable negligence” at all by pointing to the claims they
filed in the New Century and TBW bankruptcies prior to the bar
dates’ passage is equally flawed. Neither claim specified or
quantified indemnification rights pertinent to the underlying
action, although each reserved the right to amend the claim. See
Janson Decl., Ex. H, Proof of Claim 3585, In re New Century
Mortgage Corp., No. 07-10419, at 4, 6 (Bankr. D. Del. Oct. 17,
2007) (“. . . DLJ reserves the right to amend this Proof of
Claim
to
seek
indemnity
from
the
Debtor
for
any
further
or
additional indemnity claims . . . at any time, including after
any bar date . . . .”); Decl. of Stieg D. Olson, Ex. R, Proof of
Claim 2576, TBW, No. 09-bk-7047, at 2 (June 11, 2010) (“. . .
13
DLJ reserves the right to amend this claim to assert claims for
. . . indemnity obligations . . . .”).
While a claim may be amended after the bar date, see Fed.
R.
Bankr.
P.
7015
(making
applicable
Federal
Rule
of
Civil
Procedure 15, which governs amendments to pleadings in adversary
proceedings), this option is only available if the amendment
“(1)
corrects
a
defect
of
form
in
the
original
claim;
(2) describes the original claim with greater particularity; or
(3) pleads a new theory of recovery on the facts set forth in
the
original
claim.”
Midland
Cogeneration
Venture
Ltd.
Partnership v. Enron Corp. (In re Enron Corp.), 419 F.3d 115,
133 (2d Cir. 2005) (internal quotation marks omitted). None of
these avenues for permissible amendment appears to be available
here since these indemnification rights were not foreshadowed in
either
proof
of
claim
such
that
“those
involved
in
the
proceeding [were] made aware of the claims against the debtor’s
estate and [had] an opportunity to contest those claims.” In re
Chateaugay Corp., 94 F.3d 772, 777 (2d Cir. 1996) (internal
quotation marks omitted). Thus, the amendments would seek to
assert new claims, which is not permissible.7
7
The New Century claim is an exceptionally weak candidate for amendment for
two additional reasons. First, the New Century plan has already been
confirmed, and “federal jurisdiction shrinks post-confirmation.” Krys v.
Sugrue, No. 08 Civ. 3065, 2008 U.S. Dist LEXIS 86149, at *20 (S.D.N.Y. Oct.
23, 2008); see also, e.g., In re Winn-Dixie Stores, Inc., 639 F.3d 1053,
1056-57 (11th Cir. 2011) (“[P]ost-confirmation amendment -- while not
prohibited -- is not favored, and only the most compelling circumstances
14
Moreover, the dispute about the possibility of amending the
claims suggests that the underlying action is too far removed
from
the
bankruptcy
proceedings
to
be
related
to
them.
Cf.
Pacor, 743 F.2d at 995-96. To the extent we have any doubts
about removability, they must be resolved in plaintiffs’ favor.
See In re MTBE Prods. Liab. Litig., 488 F.3d at 124.
Defendants
have
thus
failed
to
establish
that
the
underlying action is sufficiently “related to” any bankruptcy
proceedings to justify this Court taking jurisdiction, and the
action should be remanded to state court.
III. Mandatory Abstention Under 28 U.S.C. § 1334(c)(2)
Even had defendants shown that the underlying action was
“related to” the Bankrupt Originators’ bankruptcies, the Court
would be obligated to remand the action to the state court.
Section 1334(c)(2) of Title 28 provides that a district court
“shall abstain” from hearing a removed action when six elements
are
present:
(1)
the
motion
to
abstain
was
timely,
(2)
the
action is based on state law claims, (3) the sole basis for
federal jurisdiction is 28 U.S.C § 1334, (4) that jurisdiction
is based on neither the “arising in” nor the “arising under”
clauses of Section 1334(b), (5) an action is commenced in state
justify it.”). Second, defendants settled the claim in the New Century
proceeding. The parties disagree about the scope and import of the
settlement, but all disputed questions of fact must be construed in favor of
the plaintiff, see NASDAQ, 929 F. Supp. at 178, suggesting that there remains
no claim to amend.
15
court, and (6) that action can be “timely adjudicated” in state
court. See In re Fairfield Sentry Ltd., No. 11 MC 224, 2011 U.S.
Dist. LEXIS 106275, at *59-60 (S.D.N.Y. Sept. 19, 2011).
The first five elements are not in contest. The parties
have
instead
focused
their
energies
on
the
sixth
element,
whether the New York State Supreme Court’s Commercial Division
(the
“Commercial
Division”)
will
be
able
to
adjudicate
the
dispute in a timely fashion. The Second Circuit has identified
four factors that are pertinent to this evaluation:
(1) the backlog of the state court’s calendar relative
to the federal court’s calendar; (2) the complexity of
the issues presented and the respective expertise of
each forum; (3) the status of the title 11 bankruptcy
proceeding to which the state law claims are related;
and (4) whether the state court proceeding would
prolong the administration or liquidation of the
estate.
Parmalat, 639 F.3d at 580. Although the question is “informed by
the comparative speeds of adjudication in the federal and state
forums,” it is not simply a matter of “whether an action could
be adjudicated most quickly in state court.” Id. Thus, a state
court may be a “timely” forum, even if it requires longer to
adjudicate
relevant
an
action
bankruptcy
than
a
federal
proceedings
will
court,
not
be
as
long
as
the
hindered
by
the
relative delay.
The
first
consideration
two
of
factors
“the
for
assessing
particular
16
timeliness
factual
and
require
procedural
circumstances presented in the two courts being compared.” Id.
For that reason, plaintiffs’ appeal to the “presum[ption] that a
state court will operate efficiently and effectively,” id. at
582, a legal conclusion, is misplaced. We must consider actual
evidence.
The evidence advanced by the parties pertinent to the first
factor does not persuade the Court that the backlog of cases is
significantly different in this district than in the Commercial
Division.
Plaintiffs’
comparison
of
the
number
of
cases
per
judge in this district to the same statistic in the Commercial
Division is faulty because, among other reasons, it gives equal
weight
to
related
assertion
that
the
threshold
for
cases
resulting
from
the
cases
and
standalone
Commercial
will
Division
not
economic
offset
crisis
cases.
raising
the
does
Defendants’
its
influx
not
monetary
of
speak
suits
to
the
relative speed of the two forums. With no persuasive evidence on
the issue in front of us, we cannot presume one court’s backlog
is more manageable than the other’s.
The relative expertise of the courts also does not tip the
balance in favor of either forum. Because the action was removed
within a month of the filing of the complaint, the state court
had no occasion to develop familiarity with the facts. This
Court, likewise, has minimal familiarity with the facts of the
underlying action.
17
With
respect
to
the
courts’
relative
legal
expertise,
neither demonstrates an advantage. While this district has seen
its share of residential mortgage-backed securities cases, so
has the Commercial Division. See, e.g., MBIA Ins. Co. v. GMAC
Mortg., LLC, No. 600837/2010 (N.Y. Sup. Ct. Apr. 1, 2010); Ambac
Assurance Corp. v. Credit Suisse Sec., No. 600070/2010 (N.Y.
Sup. Ct. Jan. 12, 2010); MBIA Ins. Co. v. Res. Funding Co., LLC,
No.
603552/2008
(N.Y.
Sup.
Ct.
Dec.
4,
2008).
Defendants’
attempt to characterize these cases as being breach of contract
cases rather than fraud cases is unpersuasive. Indeed, “[t]hese
cases
raise
the
same
claims
of
fraud
and
negligent
misrepresentation alleged here . . . .” Ace Sec. Corp., 2011
U.S. Dist. LEXIS 91989, at *32-33. Moreover, the cases before
the Commercial Division are comparably sized to the underlying
action, and some deal with even more loans than the 42,428 at
issue here. See, e.g., MBIA Ins. Co. v. Countrywide Home Loans,
Inc., No. 602825/2008 (N.Y. Sup. Ct. Aug. 24, 2009) (alleging
fraud in connection with fifteen offerings, each backed by 8,000
to 48,000 loans). If anything, because the underlying action
alleges only state claims, the Commercial Division may have an
edge in the relevant legal expertise.
Cf. Ace Sec. Corp., 2011
U.S. Dist. LEXIS 91989, at *33 (“While federal district courts
naturally
possess
expertise
in
18
applying
federal
law,
this
advantage
dissipates
for
cases
alleging
exclusively
state
claims.”).
Because the Commercial Division and this district appear
equally able to adjudicate the underlying action, we need not
address the remaining two factors, which are relevant only if
the first two factors suggest that the federal district court
would be the timelier forum. With no foreseeable significant
difference in the comparative speeds of adjudication of this
Court
and
the
Commercial
Division,
the
“timely
adjudication”
element of mandatory abstention is established. Cf. Fairfield
Sentry, 2011 U.S. Dist. LEXIS 106275, at *62 (suggesting that
the burden lies with the removing party); Ace Sec. Corp., 2011
U.S. Dist. LEXIS 91989, at *22-23 (same). Thus, even if this
Court
had
jurisdiction
over
the
underlying
and
Expenses
action,
we
must
abstain from exercising it.
III. Payment of
§ 1447(c)
Costs
Under
28
U.S.C.
Plaintiffs request the Court to order defendants to pay the
costs and expenses incurred by the removal of this action from
state court, which the Court is permitted to do by 28 U.S.C.
§ 1447(c). Such an award, however, is appropriate “only where
the removing party lacked an objectively reasonable basis for
seeking removal.” Martin v. Franklin Capital Corp., 546 U.S.
132, 141 (2005). In practice, if “lack of jurisdiction was not
19
obvious from the face of the removal petition” and no other
unusual circumstances obtain, a court cannot conclude that an
objectively reasonable basis was lacking. Albstein v. Six Flags
Entm’t Corp., No. 10 Civ. 5840, 2010 U.S. Dist. LEXIS 118116, at
*11
(S.D.N.Y.
Nov.
4,
2010);
accord
Sherman
v.
A.J.
Pegno
Constr. Corp., 528 F. Supp. 2d 320, 331 (S.D.N.Y. 2007).
While, for the reasons set out in this opinion, the removal
petition was not likely to succeed, we cannot conclude that the
effort was so objectively unreasonable as to support an award of
attorney’s
fees.
Accordingly,
the
request for costs and expenses.
20
Court
denies
plaintiffs’
CONCLUSION
For the foregoing reasons[ plaintiffs[ motion to remand the
action to state court is granted.
Dated:
New York[ New York
October 19[ 2011
~.~~~~
L~
/
(
NAOMI REICE BUCHWALD
UNITED STATES DISTRICT JUDGE
Copies of the foregoing Order have been mailed on this date to
the following:
Attorneys for Plaintiff
Daniel L. Brockett
David D. Burnett
Steig D. Olson
Quinn Emanuel Urquhart & Sullivan, LLP
51 Madison Avenue, 22nd Floor
New York, NY 10010
Attorney for Defendant
Richard W. Clary
Michael T. Reynolds
Cravath, Swaine & Moore, LLP
Worldwide Plaza
825 Eighth Avenue
New York, NY 10019
21
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