Landesbank Baden-Wurttemberg Spencerview Asset Management Limited et al v. Capital One Financial Corporation et al

Filing 23

OPINION re: (10 in 1:12-cv-05909-MGC) MOTION to Remand to State Court NOTICE OF PLAINTIFFS MOTION TO REMAND TO THE SUPREME COURT OF THE STATE OF NEW YORK, NEW YORK COUNTY filed by Landesbank Baden-Wurttemberg, (6 in 1:12-cv-05911-MGC) MOTION to Reman d to State Court NOTICE OF PLAINTIFFS MOTION TO REMAND TO THE SUPREME COURT OF THE STATE OF NEW YORK, NEW YORK COUNTY filed by Landesbank Baden-Wurttemberg Spencerview Asset Management Limited, Caledonian Trust (Cayman) Limited, (10 in 1:12-cv-05907- MGC) MOTION to Remand to State Court NOTICE OF PLAINTIFFS MOTION TO REMAND TO THE SUPREME COURT OF THE STATE OF NEW YORK, NEW YORK COUNTY filed by Landesbank Baden-Wurttemberg Spencerview Asset Management Limited, Caledonian Trust (Cayman) Limited. These are three related actions, all removed from the Supreme Court of New York County. The defendants were all involved in the securitization of mortgages and their sale to the plaintiffs. Plaintiffs assert common law claims of misrepresentation in the offering materials. Defendants have removed the cases to this Court on the ground that the claims are governed by federal law, 12 U.S.C. 632, a section added in 1933 to the Edge Act of 1919. Plaintiffs have moved to remand all three actions. For the reasons that follow, plaintiffs motion is granted. For the foregoing reasons plaintiffs motions to remand are granted. The Clerk is directed to return this case with all of its papers to the Supreme Court of New York County. Case closed. SO ORDERED. (Signed by Judge Miriam Goldman Cedarbaum on 7/17/2013) (rsh)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
----------------------------------X
LANDESBANK BADEN-WÜRTTEMBERG;
SPENCERVIEW ASSET MANAGEMENT
LIMITED; and CALEDONIAN TRUST
(CAYMAN) LIMITED (ON BEHALF AND FOR
THE BENEFIT OF THE LEVERAGED ACCRUAL
ASSET MANAGEMENT SUB-TRUST, THE
LEVERAGED ACCRUAL ASSET
MANAGEMENT SUB-TRUST II, AND THE
LEVERAGED ACCRUAL ASSET
MANAGEMENT SUBTRUST XI, EACH A SUBTRUST
OF THE PANACEA TRUST),
Plaintiffs,

OPINION

-against12 Civ. 5907(MGC)
CAPITAL ONE FINANCIAL CORPORATION;
CAPITAL ONE, NATIONAL ASSOCIATION
(SUCCESSOR-IN-INTEREST TO CHEVY
CHASE BANK, F.S.B.); CHEVY CHASE
FUNDING LLC; AND CREDIT SUISSE
SECURITIES (USA), LLC,
Defendants.
----------------------------------X
LANDESBANK BADEN-WÜRTTEMBERG,
Plaintiff,

12 Civ. 5909(MGC)

- against –
CAPITAL ONE FINANCIAL CORPORATION,
CAPITAL ONE, NATIONAL ASSOCIATION
(SUCCESSOR-IN-INTEREST TO CHEVY CHASE
BANK, F.S.B.), CHEVY CHASE FUNDING LLC and
CREDIT SUISSE SECURITIES (USA) LLC,
Defendants.
----------------------------------X
LANDESBANK BADEN-WÜRTTEMBERG,
SPENCERVIEW ASSET MANAGEMENT
LIMITED and CALEDONIAN TRUST (CAYMAN)
LIMITED, ACTING IN ITS CAPACITY AS

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TRUSTEE OF THE LEVERAGED ACCRUAL
ASSET MANAGEMENT SUB-TRUST, A SUBTRUST
OF THE PANACEA TRUST, AND THE
LEVERAGED ACCRUAL ASSET
MANAGEMENT II SUB-TRUST, A SUB-TRUST
OF THE PANACEA TRUST,
Plaintiffs,

12 Civ. 5911(MGC)

- against –
BARCLAYS BANK PLC, BARCLAYS CAPITAL
INC., CAPITAL ONE FINANCIAL CORPORATION,
CAPITAL ONE, NATIONAL ASSOCIATION
(SUCCESSOR-IN-INTEREST TO CHEVY CHASE
BANK, F.S.B.) and CHEVY CHASE FUNDING LLC,
Defendants.
----------------------------------X

APPEARANCES:
LABATON SUCHAROW LLP
Attorneys for Plaintiffs
140 Broadway
New York, NY 10005
By:

David J. Goldsmith, Esq.
Joel H. Bernstein, Esq.
Martis Alex, Esq.

MURPHY & MCGONIGLE, PC
Attorneys for Defendants Capital One Financial
Corporation, Capital One, National Association, and
Chevy Chase Funding LLC
60 East 42nd Street, Suite 5230
New York, NY 10165
4870 Sadler Road, Suite 301
Glen Allen, Virginia 23060
By:

James K. Goldfarb, Esq.
Soren E. Packer, Esq.
James A. Murphy, Esq.
Cameron S. Matheson, Esq.

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SULLIVAN AND CROMWELL, LLP
Attorneys for Defendants Barclays Bank PLC and
Barclays Capital, Inc.
125 Broad Street
New York, NY 10004
By:

Brian Frawley, Esq.
John Fritsch, Esq.

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Cedarbaum, J.
These are three related actions, all removed from the
Supreme Court of New York County.

The defendants were all

involved in the securitization of mortgages and their sale to
the plaintiffs.

Plaintiffs assert common law claims of

misrepresentation in the offering materials.

Defendants have

removed the cases to this Court on the ground that the claims
are governed by federal law, 12 U.S.C. § 632, a section added in
1933 to the Edge Act of 1919.
all three actions.

Plaintiffs have moved to remand

For the reasons that follow, plaintiffs’

motion is granted.
FACTS
Plaintiffs allege that they invested in residential
mortgage-based securities (“RMBSs”) and that the offering
materials contained misrepresentations and omissions regarding
the legal validity of the assignments of the mortgage loans to
trusts formed to hold the pooled loans.

They also allege that

the offering materials contained misrepresentations regarding
the legal validity of the trusts and their legal entitlement to
receive interest and principal payments on the loans.
Plaintiffs assert, and defendants do not contest, that all
of the underlying mortgage loans finance homes in the United
States.

In each action, one of the defendants is Capital One,

National Association (“Capital One”), successor-in-interest to

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Chevy Chase Bank, F.S.B (“CCB”).

Both Capital One, a national

bank, and its predecessor CCB, which had been a federally
chartered thrift, are corporations organized under the laws of
the United States.
The offering materials in all three actions, as well as
both parties, refer to CCB as a “seller,” but the term “seller”
obfuscates CCB’s role in the actual mechanics of the creation
and sale of the RMBSs at issue.

The offering materials state

that each transaction entailed a depositor who purchased
mortgage loans from CCB, and in turn assigned the loans to a
trustee.

In addition, the offering materials contain a

description of a related Pooling and Servicing Agreement that
provided that the depositor would assign the loans to the
trustee and that the trustee would deliver certificates to the
depositor in exchange for the loans.

CCB as servicer would also

perform functions such as collecting payments from mortgagors.
The agreements’ provisions on private placement make clear that
the certificates were to be sold directly by the Initial
Purchasers (the underwriters: Barclays Capital Inc. and Credit
Suisse Securities (USA) LLC) to investors such as the
plaintiffs. 1

1

The actual underwriter identified in the transactions varies
among the various actions, but that is not relevant for purposes
of this motion.
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In other words, while CCB may be labeled as a “seller” in
these documents, it does not have direct contact with any
ultimate purchasers of the loans, such as plaintiffs.
DISCUSSION
I.

Remand Standard
Where a removal is challenged, the removing party “bears

the burden of showing that federal jurisdiction is proper.”
Montefiore Med. Ctr., v. Teamsters Local 272, 642 F.3d 321, 327
(2d Cir. 2011).

In general, “‘federal courts construe the

removal statute narrowly, resolving any doubts against
removability.’”

Stamm v. Barclays Bank of N.Y., No. 96 Civ.

5158 (SAS), 1996 WL 614087, at *1 (S.D.N.Y. Oct. 24,
1996)(quoting Somlyo v. J. Lu–Rob Enters., Inc., 932 F.2d 1043,
1045–46 (2d Cir. 1991)).

However, “‘the federal court should be

cautious about remand, lest it erroneously deprive defendant of
the right to a federal forum.’”

Contitrade Servs. Corp. v.

Eddie Bauer Inc., 794 F. Supp. 514, 516 (S.D.N.Y. 1992) (quoting
Manas y Piniero v. Chase Manhattan Bank, N.A., 443 F. Supp. 418,
419 (S.D.N.Y. 1978)).
II.

Section 632

The pertinent jurisdictional statute, 12 U.S.C. § 632,
provides that:
[A]ll suits of a civil nature at common law or in
equity to which any corporation organized under the
laws of the United States shall be a party, arising

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out of transactions involving international or foreign
banking . . .
or out of other international or
foreign financial operations, either directly or
through the agency, ownership, or control of branches
or local institutions in . . . foreign countries,
shall be deemed to arise under the laws of the United
States . . . and any defendant in any such suit may,
at any time before the trial thereof, remove such
suits from a State court into the district court of
the United States for the proper district by following
the procedure for the removal of causes otherwise
provided by law.
12 U.S.C. § 632.

Thus, a case arises under the laws of the

United States if (1) the case is a civil suit at common law or
in equity, (2) one of the parties is a corporation organized
under the laws of the United States, and (3) the suit arises out
of transactions involving international or foreign banking,
including territorial banking, or other international or
financial operations.

Am. Int’l Grp., Inc. v. Bank of Am. Corp.

(“AIG”), 712 F.3d 775, 780 (2d Cir. 2013).

All three prongs of

the test must be satisfied for jurisdiction to lie.
III. Foreign Banking or Financial Operations
Defendants do not, and cannot, argue that the sales of
securities to foreign investors were transactions involving
international or foreign banking, but instead contend that they
were “international or foreign financial operations.”
Courts have concluded that the sale of securities
constitutes a foreign financial operation, but almost all the
cases involved securities sold for the purpose of raising

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capital.

Stamm v. Barclays Bank of N.Y., 960 F. Supp. 724, 728

(S.D.N.Y. 1997) (“It is commonly understood that the sale of
securities for the purposes of raising capital is a kind of
financial operation.”); Bank of Am. Corp. v. Lemgruber, 385 F.
Supp. 2d 200, 215 n. 13 (S.D.N.Y. 2005) (concluding that
purchase of the stock of a Brazilian defendant and several of
its affiliates constituted a financial operation); Travis v.
Nat’l City Bank of N.Y., 23 F. Supp. 363, 365-66 (E.D.N.Y. 1938)
(operations were those inherent in and arising out of trust
indenture relating to sale of German corporation’s bonds); see
also Bin-Jiang Tao v. Citibank, N.A., 445 F. App’x 951, 954 (9th
Cir. 2011) (unpublished), cert. denied, 132 S. Ct. 1561, 182 L.
Ed. 2d 168 (2012) (“‘[I]nternational or foreign financial
operations,’ . . . are defined to include operations by banks or
corporations to raise capital, including through the sale of
securities.”

(emphasis added)).

But see Warter v. Boston

Secs., S.A., No. 03-81026-Civ./Ryskamp, 2004 WL 691787, at *8
(S.D. Fla. Mar. 22, 2004) (finding that the “purpose of the
securities transactions is not legally relevant to determining
whether the transactions were financial in nature”).
A sale of goods would not constitute a “financial
operation.”

Sale of a security as a good, without a connection

to raising capital, is not normally considered a “financial

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operation.”

See Black’s Law Dictionary (9th ed. 2009) (defining

the verb finance as “[t]o raise or provide funds”).
IV.

Role of the Foreign Financial Operations

Although there is serious doubt as to whether the sales in
question are financial operations, there is no doubt that these
operations, whatever their nature, do not have a sufficient
connection to Capital One, the nationally-chartered defendant in
this case.
Defendants argue that no nexus whatsoever is necessary
between the federally-chartered corporation needed for
jurisdiction and the foreign banking or financial operations.
That argument is now foreclosed by the recent holding of the
Second Circuit that a suit under the Edge Act “must have a
federally chartered corporation as a party, and the suit must
arise out of an offshore banking or financial transaction of
that federally chartered corporation.”

AIG, 712 F.3d at 784.

The need for a nexus is fatal to jurisdiction in this
case.

The analysis of Sealink Funding Ltd. v. Bear Stearns &

Co. Inc., a case that, like this one, involved state law claims
of misrepresentations in materials relating to the sale of RMBSs
to foreign plaintiffs, is persuasive.

No. 12 Civ. 1397 (LTS),

2012 WL 4794450 (S.D.N.Y. Oct. 9, 2012).

The court concluded

that since the role of the nationally-chartered defendant, Chase
Bank, “appear[ed] to have been limited to creating U.S. trusts

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that held U.S. mortgages — actions that had no international
dimension,” there was no nexus present.

Id. at *5.

The court

added, “[t]he fact that other Defendants ultimately decided [to]
sell the RMBS to foreign entities could well have been
fortuitous as far as Chase Bank was concerned.”

Id.

CCB did not directly sell any securities to the plaintiffs;
rather, the underwriters did.

Moreover, the certificates were

delivered by a trustee (not CCB) to a depositor (also not CCB),
which assigned the loans to the trustee.

CCB’s role simply

entailed selling the underlying loans to the depositor.

The

connection between the sale of the RMBSs and CCB is too tenuous
to provide the nexus necessary to exercise federal jurisdiction.
The three actions must therefore be remanded.
CONCLUSION
For the foregoing reasons plaintiffs’ motions to remand are
granted.

The Clerk is directed to return this case with all of

its papers to the Supreme Court of New York County.

Case

closed.

SO ORDERED
Dated:

New York, New York
July 17, 2013
S/______________________________
MIRIAM GOLDMAN CEDARBAUM
United States District Judge

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