Western and Southern Life Insurance Company et al v. Morgan Stanley Mortgage Capital, Inc. et al
Filing
43
OPINION AND ORDER denying 9 Motion to Change Venue to the Southern District of New York Pursuant to 28 USC Section 1404(a); granting 10 Motion to Remand to State Court. The Court REMANDS this matter to the Hamilton County Court of Common Pleas. Signed by Judge S Arthur Spiegel on 12/20/2011. (km1)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF OHIO
WESTERN DIVISION
THE WESTERN AND SOUTHERN LIFE :
INSURANCE COMPANY, et al.,
:
:
Plaintiffs,
:
:
:
v.
:
:
MORGAN STANLEY MORTGAGE
:
CAPITAL, INC., et al.,
:
:
Defendants.
:
NO. 1:11-CV-00576
OPINION AND ORDER
This matter is before the Court on Defendants’ Motion to
Transfer the Action to the Southern District of New York Pursuant
to 28 U.S.C. § 1404(a) (doc. 9), Plaintiffs’ Response in Opposition
(doc. 26), and Defendants’ Reply (doc. 35).
is
Plaintiffs’
Motion
to
Remand
to
Also before the Court
State
Court
(doc.
10),
Defendants’ Response in Opposition (doc. 29), and Plaintiffs’ Reply
(doc. 36).
2011.
The Court held a hearing on this matter on December 6,
For
the
reasons
indicated
herein,
the
Court
DENIES
Defendants’ Motion, GRANTS Plaintiffs’ Motion, and REMANDS this
matter to state court for further proceedings.
I.
Background
This
case
involves
Plaintiffs’
allegations
that
Defendants sold them mortgage-backed securities after abandoning
disclosed underwriting guidelines (doc. 2).
the
loans
were
issued
based
on
In Plaintiffs’ view,
overstated
incomes,
inflated
appraisals, false verifications of employment, and other departures
from disclosed underwriting criteria (Id.).
Plaintiffs assert
several state law claims for violations Ohio securities law as well
as a federal claims for violation of Section 11 of the 1933
Securities Act (Id.).
According to Defendants, they simply
provided the securities at issue in response to demands of the
market, which desired to profit from housing investments.
At issue before the Court are the parties’ arguments
concerning the proper jurisdiction for the adjudication of this
matter.
According to Plaintiffs, Defendants never should have
removed this matter from state court, and this Court should remand
based on Section 22(a) of the Securities Act, which provides that
“no case arising under this title and brought in any State court of
competent jurisdiction shall be removed to any court of the United
States” (doc. 10, citing 15 U.S.C. § 77v).
In Defendants’ view,
Plaintiffs’ federal Securities Act claims are time-barred and
provide no valid basis for remand (doc. 29).
Moreover, according
to Defendants, this matter should rather be governed by the fact
that it is “related to” a bankruptcy in the District of Delaware
(Id.).
Under such theory, Defendants claim there is federal
jurisdiction, and moreover, they argue the Court should transfer
this matter to the Southern District of New York, where a class
action is pending in which half of the Plaintiffs in this action
are putative class members (doc. 9).
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II.
The December 6, 2011 Hearing
Plaintiffs argued first at the hearing regarding their
motion to remand.
Plaintiffs contend this case is similar to
Western & Southern v. Countrywide, No. 1:11-CV-00267, in that the
securities at issue were essentially bundled mortgages.
case, there are seven offerings.
In this
Four of the offerings were
originated and sold by Defendant Morgan Stanley, while three were
originated
and
sold
by
the
now
defunct
Indie
Mac,
and
were
underwritten by Defendants Morgan Stanley and Merrill Lynch.
Only
two out of the seven offerings involve Section 11 claims, the
majority of the claims being based on Ohio state law.
Plaintiffs insisted at the hearing that this case is
directly on point with Allstate Insurance Company v. Credit Suisse,
11-Civ. 2232, 2011 U.S. Dist. LEXIS 120734 (S.D.N.Y. October 19,
2011).
In Allstate the court remanded the case to state court
after determining that bankruptcy “related to” jurisdiction was
inappropriate
because
the
Defendants
had
not
filed
with
the
bankruptcy court any proofs of claim for potential indemnification
and the bar date for filing such a claim had expired.
Id.
The
Court further found that even if it did have jurisdiction it should
abstain from hearing the case, as the matter involved only state
law claims, and the state court was equally capable of adjudicating
the matter.
Id.
In addition to arguing that the Court should find no
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“related to” bankruptcy jurisdiction, Plaintiffs contended at the
hearing, and in their papers, that the Court should remand this
matter to state court based on Section 22 of the Securities Act.
Relying on a Second Circuit case, Defendants responded at the
hearing and in their papers that in their view such provision is
trumped by the bankruptcy removal statute, 28 U.S.C. § 1452, which
they believe allows them to remove from state court a bankruptcyrelated case, to federal court.
California Public Employees’
Retirement System v. Worldcom, 368 F.2d 86 (2d Cir. 2004).
Defendants argued Plaintiffs’ claims are related to the American
Home Mortgage (“AHM”) bankruptcy pending in Delaware because those
claims trigger automatic indemnification rights in Defendants’
contracts with AHM.
Plaintiffs reply that a better authority on the validity
of a Section 22(a) remand is Tennessee Consolidated Retirement
System
v.
Citigroup,
Inc.,
which
specifically
considered
and
rejected the decision of the court in California Public Employees’
Retirement System,
No. 3:03-0128, 2004 U.S. Dist. LEXIS 24043 at
*5 (M.D. Tenn. October 8, 2004).
The Sixth Circuit never reached
the issue, holding that orders remanding actions to state court are
not reviewable.1
The Tennessee Consolidated court reasoned that
because a more specific statute should be enforced over a more
1
Tenn. Consol. Ret. Sys. v Citigroup, Inc., Nos. 035785/5876, 2003 U.S. App. LEXIS 27926 (6th Cir. Nov. 4, 2003).
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general one, and because Section 22(a) applies to a particular
class of Plaintiffs that Congress specifically considered, Section
22(a) should trump the bankruptcy removal statute.
Moreover,
Plaintiffs signal that Section 22(a) has been more recently amended
by Congress, making it a later-enacted statute.
Plaintiffs
also
argued
related-to
jurisdiction
only
applies to the offerings originated and sold by Morgan Stanley, and
not to those three sets of offerings originated by Indie Mac.
such
Plaintiffs
contended
that
there
is
no
As
supplemental
jurisdiction over such claims, and without a remand of the Morgan
Stanley offerings, the Court would have to sever the Indie Mac
offerings, which would be inefficient.
Finally Plaintiffs argued that their choice of forum is
entitled to deference, that they reside in Ohio, and Defendants
reached into Ohio when they marketed their securities here.
They
argued Defendants will not suffer prejudice by defending this case
in Ohio.
Defendants responded at the hearing that in their view,
Sixth Circuit authority, Wyser-Pratt Management Co. v. Telxon
Corp., 413 F.3d 553 (6th Cir. 2005), bars Plaintiffs from invoking
American Pipe tolling as to their federal claims. They also argued
that it is not too late for Defendants to file a notice of claim in
the American Home bankruptcy, because the bankruptcy court has the
discretion to allow that.
In Defendants’ view, because this
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pending action could have a “conceivable effect” on the bankruptcy,
there is a basis for federal jurisdiction, and for transfer to New
York.
Defendants argued that the Allstate case, which opted for
remand, is an outlier, as most courts have found bankruptcy
related-to jurisdiction under the conceivable effects test.
The Court noted at the hearing that with electronic
discovery, it is hard for the Court to see any real advantage for
Defendants in transferring the case to New York.
Defendants
responded that the loan files at issue are not electronic, and the
location of most of the relevant witnesses is in New York.
Defendants contend they could compel witnesses to testify in New
York, as opposed to using videotaped depositions at trial in Ohio.
Moreover, Defendants argued that New York makes sense as venue for
this case, because two of the securitizations in this case are at
issue in the Pass-Through litigation in the Southern District of
New York.
Plaintiffs responded that the time has not run on their
Securities Act claims, and Defendants already lost such argument
before the Southern District of New York, which found American Pipe
tolling applicable.
In re Morgan Stanley Mortgage Pass-Through
Cerificates Litig., No. 09-Civ-2137, 2011 U.S. Dist. LEXIS 104280,
2011 U.S. Dist. LEXIS 104280, at *47-57 (S.D.N.Y. September 15,
2011).
In their briefing, Plaintiffs further cite to In re
Wachovia Equity Sec. Litig., No. 08-CV-6171, 2011 U.S. Dist. LEXIS
-6-
36129, at *29 (S.D.N.Y., March 31, 2011), which in their view shows
how Wyser-Pratt is inapplicable, because a dismissal of a plaintiff
for lack of standing is functionally equivalent to the denial of
class certification for purposes of American Pipe tolling (doc.
36).
As as final matter, the parties both raised arguments
concerning whether the New York court or this Court statistically
adjudicates cases more expeditiously.
Defendants contend the New
York court is fifteen percent faster, while Plaintiffs contend the
higher volume of cases in New York dilutes any real advantage.
III.
Discussion
As an initial matter, the Court notes the parties agree
this Court has jurisdiction to decide these matters, based on
Sinochem Int’l Co. v. Malay Int’l Shipping Corp., 549 U.S. 422, 425
(2007).
The parties disagree however as to which of their motions
the Court should first consider.
The Court finds that it has
leeway as to how to proceed, as it may decide “threshold issues
such as subject-matter jurisdiction[,]. . .personal jurisdiction,”
and forum non conveniens “in any order that the court deems
appropriate.” DRFP, LLC v. The Republica Bolivariana de Venezuela,
No. 04-CV-0793, 2007 U.S. Dist. LEXIS 51267, at *6 (S.D. Ohio, July
16, 2007).
The Court finds it appropriate to rule on Defendants’
motion first, as it concludes that its ruling on Defendants’ motion
to transfer venue will become law of the case.
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The Court is of the
view that its resolution of the jurisdictional issues in this case
should assist the parties to move beyond their procedural arguments
and get to the merits.
In the Court’s view, as it is ultimately
remanding this matter to state court, its ruling on Defendants’
motion to transfer should allow the state court to move this case
toward resolution without devoting further time to reiterated
arguments regarding transfer.
The Court rejects Defendants’ position that this matter
belongs in the Southern District of New York.
transfer
motions,
this
Court
employs
the
When ruling on
balancing
approach
developed by the Honorable David Porter in Artisan Development v.
Mountain States Development Corp., 402 F. Supp. 1312 (S.D.Ohio
1975).
Under this approach, the Court considers a variety of
factors including the convenience of the witnesses, where the
operative facts occurred, location of documentary evidence, and the
possibility of prejudice in either the forum or transfer state.
The Court must give foremost consideration to the plaintiff's
choice of forum, and the balance must weigh "strongly in favor of
a transfer" before the Court should grant a Section 1404(a) motion.
Nicol v. Koscinski, 188 F.2d 537 (6th Cir. 1951); Lewis v. ACB Bus.
Servs., 135 F.3d 389, 413 (6th Cir. 1998), Artisan Development v.
Mountain States Development Corp., 402 F. Supp. 1312 (S.D.Ohio
1975).
Indeed, a plaintiff’s choice of forum should rarely be
disturbed.
Reese v. CNH Am. LLC., 574 F.3d 315 (6th Cir. 2009).
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In addition to the factors above, Section 1404(a) requires that the
Court consider “public-interest concerns,” specifically the “issues
of congested dockets [and] concerns with resolving controversies
locally.”
Wm. R. Hague, Inc. v. Sandburg, 468 F.Supp.2d 952, 963
(S.D. Ohio 2006)(citing Gulf Oil Corp. v. Gilbert, 330 U.S. 501,
508-09 (1947)).
Here the Court does not find the balance weighs strongly
in favor of a transfer.
are in New York.
Witnesses are in Ohio, just as witnesses
Documentary evidence can be easily transmitted.
The Court sees no real prejudice to Defendants by their defending
this action in Ohio, where they have offices, and where they
marketed the securities.
The Court finds no material difference
in the congestion of dockets here in Ohio or in New York.
The Court further agrees with Plaintiffs that their
Securities
Act
claims
are
timely
based
on
American
Pipe
Construction Co. v. Utah, 414 U.S. 538, 554 (1974). In the Court’s
view, the dismissal of plaintiffs from the Pass-through litigation
operated to toll applicable statutes of repose and limitations,
such that Plaintiffs’ instant federal securities claims can be
considered viable.
In re Wachovia Equity Sec. Litig., 2011 U.S.
Dist. LEXIS 36129, at *29 (S.D.N.Y., March 31, 2011)(“the failure
to apply American Pipe tolling to [plaintiffs’ claims] would
undermine the policies of ‘efficiency and economy of litigation’
that underlie Rule 23").
Because Plaintiffs have viable federal
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securities claims, Section 22 clearly requires that this matter
remain
in
state
court,
where
originally
filed.
Tennessee
Consolidated Retirement System v. Citigroup, Inc., No. 3:03-0128,
2004 U.S. Dist. LEXIS 24043 (M.D. Tenn. October 8, 2004).
Even if the Court errs, and if the Security Act claims
are time-barred, the only remaining claims would be state law
claims.
Because mandatory abstention would apply in such case,
this matter is properly before the state court.2
The Court further agrees with Plaintiffs that this case
is directly on point with Allstate Ins. Co. v Credit Suisse, 2011
U.S. Dist. LEXIS 12074 (S.D.N.Y. October 19, 2011).
The Court
finds the reasoning of such decision correct that where no claim
for indemnification has been filed in the bankruptcy matter, and
the bar date for filing such a claim has expired, it is simply too
far
removed
jurisdiction.
to
provide
a
basis
for
“related-to”
bankruptcy
As such the Court rejects Defendants’ view that the
AHM bankruptcy provides a basis for federal jurisdiction.
Finally, as the Court concluded this matter was not
properly removed to federal court, how much more improper would it
2
Pursuant to 28 U.S.C. § 1334(c)(2), a district court must
abstain from exercising jurisdiction where 1) a complaint is
“based on a state law claim or cause of action;” 2) the only
asserted basis for federal jurisdiction is bankruptcy “related
to” jurisdiction; 3) the action was “commenced in a state forum
of appropriate jurisdiction;” 4) the action can be timely
adjudicated in state court; and 5) the action is a non-core
proceeding. In re Dow Corning Corp., 86 F.3d at 497 (6th Cir.
1996).
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be to transfer a case of predominately Ohio state law claims to the
Southern District of New York. The Ohio court system is emminently
qualified to adjudicate these claims.
Accordingly, the Court DENIES Defendants’ Motion to
Transfer the Action to the Southern District of New York Pursuant
to 28 U.S.C. § 1404(a)(doc. 9), GRANTS Plaintiffs’ Motion to Remand
(doc. 10), and REMANDS this matter to the Hamilton County Court of
Common Pleas.
SO ORDERED.
Dated: December 20, 2011
/s/ S. Arthur Spiegel
S. Arthur Spiegel
United States Senior District Judge
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