Cortlandt Street Recovery Corp. et al v. Aliberti et al

Filing 88

OPINION AND ORDER re: 79 MOTION for Reconsideration re; 78 Clerk's Judgment, 77 Memorandum & Opinion, filed by Cortlandt Street Recovery Corp., Wilmington Trust Company: Plaintiffs' motion for reconsideration of the Cour t's dismissal of this action and for leave to amend the Complaint is GRANTED. The Clerk of Court is directed to close the motion at Docket Number 79 and to reopen the case. The remaining parties are hereby ORDERED to submit by December 15, 2014 a briefing schedule on the futility arguments listed by the Sponsor Defendants in their response to Plaintiffs' motion for reconsideration. (Signed by Judge J. Paul Oetken on 12/9/2014) (tn)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
-------------------------------------------------------------------------CORTLANDT STREET RECOVERY CORP.;
WILMINGTON TRUST COMPANY, as trustee,
Plaintiffs,
-vGIANCARLO ALIBERTI;
HELLAS TELECOMMUNICATIONS, S.À.R.L.;
HELLAS TELECOMMUNICATIONS CO-INVEST LTD.;
HELLAS TELECOMMUNICATIONS EMPLOYEES LTD.;
TCW HT CO-INVEST I L.P.;
TCW HT CO-INVEST II L.P.,
Defendants.
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12-CV-8686 (JPO)
OPINION AND ORDER

J. PAUL OETKEN, District Judge:
Plaintiffs Cortlandt Street Recovery Corporation (“Cortlandt”) and Wilmington Trust
Company (“WTC”) bring suit alleging that various companies and private investors
(“Defendants”) collectively defrauded a group of people who held notes issued by those
companies (“Noteholders”) through a scheme known as a “bleed out.” (Dkt. No. 29 ¶¶ 20, 51.)
Related to this scheme, Plaintiffs assert multiple state law claims under federal diversity
jurisdiction, 28 U.S.C. § 1332. 1 (Id. ¶ 7.)
On March 11, 2014, the Court dismissed this case pursuant to Federal Rule of Civil
Procedure 12(b)(1) because Plaintiffs had failed to plead complete diversity of citizenship. (Dkt.
No. 77.) Plaintiffs now move for reconsideration of that decision. Specifically, they request

For a complete description of the factual background, underlying claims, and parties to the suit,
see the Court’s previous Opinion and Order dismissing this action. (Dkt. No. 77 at 1-5.)
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leave to amend the First Amended Complaint (“Complaint”) to drop three parties from the suit in
an effort to plead complete diversity. 2 (Dkt. No. 79-80.) The result of their proposed
amendments is an action brought by a sole plaintiff—trustee WTC—with Delaware citizenship,
against the three Hellas Defendants, which are all foreign citizens. (Dkt. No. 80 at 2.)
Defendants contend that the proposed amendment is futile. Trustee WTC, they argue, is a
“naked trustee” and therefore the Court must determine diversity based on the citizenship of
WTC’s beneficiaries, the Noteholders. Like the Hellas defendants, the Noteholders are foreign
citizens—hence, Defendants argue, there is no diversity. (Dkt. Nos. 83, 85.)
For the reasons that follow, the Court holds that WTC is not a naked trustee but rather is
a real party in interest. Accordingly, Plaintiffs’ motion for reconsideration and for leave to
amend the Complaint is granted.
I.

Legal Standard
A.

Leave to Amend

“The Court should freely give leave [to amend] when justice so requires,” Fed. R. Civ. P.
15(a), and absent some justification for refusal, see Foman v. Davis, 371 U.S. 178, 182 (1962).
Justifications for refusal include “undue delay, bad faith or dilatory motive on the part of the
movant, repeated failure to cure deficiencies by amendments previously allowed, undue
prejudice from the opposing party by virtue of allowance of the amendment, [and] futility of the
amendment.” Williams v. Citigroup, Inc., 659 F.3d 208, 213-14 (2d Cir. 2011) (quoting Foman,

Plaintiffs requested leave to amend in their response to Defendants’ motion to dismiss. (Dkt.
No. 69 at 22 n.20 (“If the Court concludes there are any defects or deficiencies in the Amended
Complaint, Plaintiffs request the opportunity to amend.”).) The Court did not explicitly rule on
this request, but in effect denied it when it dismissed the case. The Court now reconsiders this
denial.
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371 U.S. at 182). In this case, Defendants argue that amendment would be futile. Amendment is
futile where, as relevant here, the Court lacks subject matter jurisdiction over the case as pleaded
in the proposed amendment. See, e.g., Latino Quimica-Amtex S.A. v. Akzo Nobel Chemicals
B.V., No. 03 Civ. 10312, 2005 WL 2207017, at *4 (S.D.N.Y. Sept. 8, 2005) (“Where a court
would lack subject matter jurisdiction over the case as pleaded in the proposed amendment, the
court may deny leave to amend on the ground of futility.” (citation omitted)).
B.

Diversity Jurisdiction

Federal courts may decide only those cases that fall within their subject matter
jurisdiction. Herrick Co., Inc. v. SCS Commc’ns, Inc., 251 F.3d 315, 321-22 (2d Cir. 2001).
Plaintiffs seek to invoke this Court’s diversity jurisdiction under 28 U.S.C. § 1332(a)(2), which
empowers federal courts to decide civil actions if the amount in controversy exceeds $75,000
and the dispute is between citizens of the United States and citizens or subjects of a foreign state.
“It is well established that for a case to fit within [section 1332], there must be complete
diversity” between plaintiffs and defendants. St. Paul Fire and Marine Ins. Co. v. Universal
Builders Supply, 409 F.3d 73, 80 (2d Cir. 2005) (internal quotation marks omitted). Diversity is
not complete if any plaintiff is a citizen of the same state as any defendant, id., or if a plaintiff
and a defendant are both foreign citizens, Universal Licensing Corp. v. Paola del Lungo S.p.A.,
293 F.3d 579, 580-81 (2d Cir. 2002) (citation omitted).
In determining whether there is complete diversity, the court must determine the
citizenship of the “real and substantial parties to the controversy.” Airlines Reporting Corp. v. S
& N Travel, Inc., 58 F.3d 857, 861 (2d Cir. 1995) (quoting Navarro Savings Ass’n v. Lee, 446
U.S. 458, 460 (1980)). Here, the status of trustee WTC is at issue. “[A] trustee is a real party to
the controversy for purposes of diversity jurisdiction when he possesses certain customary
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powers to hold, manage, and dispose of assets for the benefit of others.” Navarro Savings, 446
U.S. at 464. 3 “Without such customary powers, the trustee is a ‘naked trustee’ with no interest in
the underlying litigation.” Wells Fargo Bank, N.A. v. Ullah, No. 13 Civ. 485, 2014 WL 470883,
at *3 (Feb. 6, 2014) (citing Navarro, 446 U.S. at 465). “If a trustee is truly a naked trustee, the
trust’s beneficiaries are the real parties to the controversy, and their citizenship will control for
diversity purposes.” Id.
II.

Discussion
A.

Diversity Jurisdiction

The question before the Court is whether trustee WTC is a “real party to the
controversy” such that its citizenship controls for the purpose of diversity jurisdiction. If it is,
then there is complete diversity for purposes of federal jurisdiction. The Court previously
indicated, without deciding the question, that it had doubts as to whether WTC was a real party
to the controversy. (Dkt. No. 77 at 4 n.4.) Plaintiffs’ proposed Second Amended Complaint and
the accompanying Indenture Agreement (“Indenture”) quell those doubts. 4 (Second Amended
Complaint, Dkt. No. 81, Ex. A; Indenture, Dkt. No. 81, Ex. A.) These documents establish that,

Plaintiffs contend that the Court need not consider the Navarro Savings factors here, as the
citizenship of an indenture trustee controls for diversity purposes, without any consideration of
who is the “real party in interest.” (Dkt. No. 80 at 7-9.) Defendants disagree. The Court need
not resolve this issue because, as explained infra Section II, even under the Navarro factors,
WTC’s citizenship controls.
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“It is [] well established that when the question is subject matter jurisdiction, the court is
permitted to rely on information beyond the face of the complaint.” St. Paul Fire and Marine
Insurance Co., 409 F.3d at 80 (citations omitted). Here, the Court relies on the Indenture.
Although the Indenture names the Bank of New York as trustee, WTC is a successor trustee and,
as such, has all the rights, powers, and duties of the trustee under the Indenture. (Indenture, Dkt.
No. 81, Ex. A at § 7.08; Second Amended Complaint, Dkt. No. 81, Ex. A ¶¶ 10, 15.)
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like the trustee in Navarro Savings, WTC possesses certain customary powers to “hold, manage,
and dispose of assets for the benefit of others.” Navarro Savings, 446 U.S. at 464.
As trustee, WTC holds the assets—in this case, the notes—for the benefit of the
Noteholders (Indenture, Dkt. No. 81, Ex. A), and has the authority to manage the notes, by,
among other things, authenticating them (id. § 2.02), accelerating them (id. § 6.02), and naming
the method by which they are to be redeemed (id. § 3.02). Further, WTC has the power to
dispose of the notes on behalf of the beneficiaries: in the event of default, WTC may use “any
available remedy” to collect the payment of principal, premium, and interest on the notes in its
own name for the benefit of the Noteholders. This includes the power to sue on behalf of the
Noteholders, a power that the Noteholders can obtain only after five requirements are met,
including WTC’s refusing to sue. (Id. §§ 6.03, 6.06, 6.08, 11.04.)
These powers indicate that WTC is an “active trustee[] whose control over the assets held
in [its] name is real and substantial.” Navarro Savings, 446 U.S. at 465; see Fleet Nat. Bank v.
Trans. World Airlines, Inc., 767 F. Supp. 510, 515 (S.D.N.Y. 1991) (a trustee’s powers to
“accelerate the notes, pursue remedies at law and equity, and to recover in its own name as
trustee of an express trust” indicate that it is a real party to the controversy and not a naked
trustee); Manufacturers & Traders Trust Company v. HSBC Bank USA, N.A., 564 F. Supp. 2d
261, 264 (S.D.N.Y. 2008), disagreed with on other grounds, Nomura Asset Acceptance Corp.
Alt. Loan Trust, Series 2007-1 ex rel. HSBC Bank USA, N.A v. Nomura Credit & Capital, Inc.,
No. 13 Civ. 3138, 2014 WL 2861479 (S.D.N.Y. June 24, 2014) (fact that trustee “retained the
power to sue on behalf of the Note Holders and permitted the Note Holders to sue on their own
behalf only after five requirements were met, one of which included the refusal of the indenture
trustee to sue” militates in favor of finding that the trustee was a real party in interest).
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In contending that WTC is a naked trustee who acts as a mere conduit for a remedy
flowing to others, Defendants point to the Noteholders’ power, in some situations, to direct WTC
to pursue certain remedies. (Dkt. No. 83 at 5.) In light of the powers granted WTC, however,
this limited allowance to the Noteholders is not sufficient to reduce WTC to a mere conduit. See
Manufacturers & Traders Trust Company, 564 F. Supp. 2d at 264 (“Here, although the Note
Holders retained certain powers over the trustees, including the possibility of directing the
trustees, these powers do not reduce the indenture trustees to the status of ‘mere conduit[s] for a
remedy flowing to others.’” (quoting Navarro, 446 U.S. at 465) (alteration in original)).
For these reasons, trustee WTC is a real party to the controversy and therefore its
citizenship controls for the purposes of diversity. The Second Amended Complaint alleges, and
the parties agree, that WTC is a citizen of Delaware and that Defendants are foreign citizens.
(Second Amended Complaint, Dkt. No. 81, Ex. A ¶¶ 10, 19.) Accordingly, if Plaintiffs are
permitted to make the proposed amendments, they will properly invoke this Court’s diversity
jurisdiction.
B.

The Sponsor Defendants’ Remaining Futility Arguments

Defendants Hellas Telecommunications Co-Invest Ltd., Hellas Telecommunications
Employees Ltd., TCW HT CO-INVEST I L.P., and TCW HT CO-INVEST II L.P. (the “Sponsor
Defendants”) list various other arguments as to why Plaintiffs’ motion for reconsideration should
be denied as futile. 5 (Dkt. No. 85 at 3.) For the substance of these arguments, they refer the
Court to their motion to dismiss, filed almost two years ago. (Id. (citing Dkt. No. 47).) Because
These bases for dismissal are: (1) abstention pursuant to Colorado River Water Conservation
District v. United States, 424 U.S. 800 (1976); (2) lack of personal jurisdiction; (3) forum non
conveniens; and (4) dissolution of the Sponsor Defendants such that they cannot be sued under
applicable foreign law.
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these arguments are likely affected by the amendments to the Complaint, and because neither
party has adequately briefed these issues since the amendments were proposed, the Court does
not decide them now. Rather, the parties shall submit a letter to the Court proposing a schedule
for supplemental briefing on these issues.
III.

Conclusion
Plaintiffs’ motion for reconsideration of the Court’s dismissal of this action and for leave

to amend the Complaint is GRANTED. The Clerk of Court is directed to close the motion at
Docket Number 79 and to reopen the case.
The remaining parties are hereby ORDERED to submit by December 15, 2014 a briefing
schedule on the futility arguments listed by the Sponsor Defendants in their response to
Plaintiffs’ motion for reconsideration.
SO ORDERED.
Dated: December 9, 2014
New York, New York
____________________________________
J. PAUL OETKEN
United States District Judge

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