Stark Master Fund Ltd et al v. Credit Suisse Securities (USA) LLC

Filing 80

DECISION AND ORDER signed by Judge Rudolph T Randa on 4/9/2015 GRANTING 62 Plaintiffs motion for leave to conduct limited jurisdictional discovery; DENYING as MOOT 16 Motion to Dismiss for Lack of Jurisdiction; DENYING as MOOT 19 Motion to Dismiss for Lack of Jurisdiction; DENYING as MOOT 22 Motion to Dismiss for Failure to State a Claim; and DENYING as MOOT 26 Motion to Dismiss. (cc: all counsel) (Zik, Linda)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF WISCONSIN
STARK MASTER FUND Ltd. and
STARK GLOBAL OPPORTUNITIES
MASTER FUND, Ltd.,
Plaintiffs,
-vs-

Case No. 14-C-689

CREDIT SUISSE SECURITIES (USA) LLC,
DEUTSCHE BANK SECURITIES USA, Inc.,
APOLLO GLOBAL MANAGEMENT LLC, and
APOLLO MANAGEMENT HOLDINGS, L.P.
Defendants.
DECISION AND ORDER

The plaintiffs, Stark Master

Fund

Ltd.

and

Stark

Global

Opportunities Master Fund Ltd., collectively referred to as “Stark,” allege
that the defendants, Credit Suisse Securities, Deutsche Bank Securities,
Apollo

Global

Management

and

Apollo

Management

Holdings,

misrepresented the nature of the financing for a proposed merger between
Huntsman Corporation and Momentive Specialty Chemicals, Inc. f/k/a
Hexion Specialty Chemicals, Inc.. According to Stark, the defendants’
misrepresentations caused them to retain their position in Huntsman stock

and to purchase additional shares. The merger collapsed, and Stark is now
suing Apollo and the Banks for intentional misrepresentation, negligence,
strict liability misrepresentation, conspiracy to defraud, and aiding and
abetting fraud. 1
Procedurally, the Banks and Apollo moved to dismiss for lack of
personal jurisdiction, lack of subject matter jurisdiction, and failure to
state a claim. Instead of responding to those motions, Stark filed an
amended complaint, and the defendants renewed their initial motions.
Stark now moves for leave to conduct limited jurisdictional discovery. The
parties stipulated that Stark will file any opposition to the defendants’
motions to dismiss the amended complaint on or before 30 days following
either a decision from this Court on any motion for jurisdictional discovery,
or the close of jurisdictional discovery, whichever is later.
Regarding subject matter jurisdiction, Stark alleges that the Court
may exercise jurisdiction because the parties are completely diverse and
the amount in controversy exceeds $75,000. 28 U.S.C. § 1332. According to
the amended complaint, the plaintiffs are British Virgin Islands
corporations both having a principal place of business in St. Francis,

Huntsman’s suit against the Banks settled in 2009 for $1.73 billion dollars. See
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aXzIYlRd1CVU
(last
visited 4/2/15).
1

-2-

Wisconsin for the purpose of, among other things, trading in securities
through

their

respective

investment

managers,

Stark

Offshore

Management LLC and Stark Global Opportunities Management, LLC,
both of which are Wisconsin limited liability companies. Both Funds (i.e.,
both plaintiffs) are comprised of investments from various individual and
institutional investors including, without limitation, pension funds,
foundations, and university endowments.
Defendant Deutsche Bank Securities (USA), Inc. is a Delaware
corporation with its principal place of business in New York, New York.
Deutsche Bank is licensed in Wisconsin as a broker-dealer. It served as a
Prime Broker for Stark, providing it with such services as execution of
transactions, clearance and settlement of trades, custody of investments
and cash, customer reporting, securities lending, and financing. Stark
alleges on information and belief that Deutsche Bank had an office in
Wisconsin during the relevant time period.
Defendant Credit Suisse Securities (USA) LLC is a Delaware
corporation with its principal place of business in New York, New York.
Credit Suisse is licensed in Wisconsin as a broker-dealer. It has served as
the Prime Broker for the plaintiffs’ Wisconsin-based fund advisor for over
ten years, providing the plaintiffs with trade executions, loans and normal
-3-

services of a Prime Broker, including clearance and settlement of trades,
custody of investments and cash, customer reporting, securities lending,
and financing. Its agents visited Stark in Wisconsin on a monthly basis to
promote and provide services under the Prime Broker Agreement and to
solicit further business from Stark for which Credit Suisse would be paid
commissions and fees. On an annual basis, those commissions and fees
amounted to several million dollars.
Defendant Apollo Global Management LLC is a Delaware limited
liability corporation with its principal place of business in New York, New
York. Apollo Global Management invests in Wisconsin companies as part of
its portfolio of companies that it actively manages and controls, and its
principals serve on the boards of directors for corporations which have
their principal places of business in Wisconsin. Defendant Apollo
Management Holdings, L.P. is a Delaware limited partnership with its
principal place of business in New York, New York.
Regarding personal jurisdiction, a federal court sitting in diversity
may exercise personal jurisdiction over a nonresident defendant only if a
court in the state in which the federal court is sitting would have
jurisdiction. Nelson v. Park Indus., Inc., 717 F.2d 1120, 1123 (7th Cir. 1983).
Thus, the Court must examine whether Wisconsin’s long-arm statute
-4-

reaches the defendants, Wis. Stat. § 801.05, and whether the exercise of
jurisdiction over the defendants would violate due process. Logan Prods.,
Inc. v. Optibase, Inc., 103 F.3d 49, 52 (7th Cir. 1996). In order to justify its
request to conduct jurisdictional discovery, Stark must establish a prima
facie case for personal jurisdiction. Cent. States, S.E. & S.W. Areas Pension
Fund v. Phencorp Reinsurance Co., Inc., 440 F.3d 870, 876 (7th Cir. 2006)
(citing Purdue Research Found. v. Sanofi-Synthelabo, S.A., 338 F.3d 773,
782 (7th Cir. 2003)). In this analysis, Stark is “entitled to the resolution in
its favor all disputes concerning relevant facts presented in the record.” Id.
at 878. The Court will “read the complaint liberally, in its entirety, and
with every inference drawn in favor” of Stark. Id.
A bullet-point summary contained in of one of Stark’s reply briefs,
ECF No. 76 at 1-3, illustrates that the plaintiffs have made the requisite
prima facie showing. Most significant for jurisdictional purposes is that on
August 2, 2007, Credit Suisse solicited the plaintiffs to purchase
Huntsman stock from an investment firm called MatlinPatterson by means
of an email sent to the traders’ desk at Stark’s offices in St. Francis,
Wisconsin.

This

was

followed

by

other

communications

with

representatives at Stark who were located in Wisconsin. Although Credit
Suisse solicited the plaintiffs to purchase MatlinPatterson shares, it failed
-5-

to advise them about the banks’ secret side agreements with Apollo or that
key representations concerning the security of financing, which were
previously set forth a Commitment Letter, Merger Agreement (and widely
reported in news releases and public announcements) were fraudulent.
Where, as here, the plaintiffs’ claim is an intentional tort, “the inquiry
focuses on whether the conduct underlying the claim[] was purposely
directed at the forum state.” Felland v. Clifton, 682 F.3d 665, 674 (7th Cir.
2012). Stark provides enough to suggest that the defendants, in concert,
“expressly aimed” their conduct at Wisconsin. Id. at 675.
Stark also requests leave to conduct discovery as to subject matter
jurisdiction. May v. Wal-Mart Stores, Inc., 751 F. Supp. 2d 946, 952 (E.D.
Ky. 2010) (federal courts “often allow plaintiffs who originally bring a case
in federal court a limited amount of discovery to establish that the court
has subject matter jurisdiction”) (citing Gilbert v. Ferry, 401 F.3d 411, 415
(6th Cir. 2005)). The Apollo defendants argue that the citizenship of certain
of their members or partners would destroy diversity jurisdiction as to
those two entities. However, as the Court views the record, the citizenship
of Apollo members/partners at the time this action was filed has yet to be
definitively established. See Grupo Dataflux v. Atlas Global Group, L.P.,
541 U.S. 567, 570-71 (2004) (“the time-of-filing rule … measures all
-6-

challenges to subject-matter jurisdiction premised upon diversity of
citizenship against the state of the facts that existed at the time of filing”).
For example, AMG LLC’s members are defined as Class A shareholders,
and according to Apollo, the full shareholder list is nearly 1,100 pages long.
Apollo’s production of a four-page list purporting to establish the
citizenship of certain shareholders as of November 2014 – months after
this action was filed – is insufficient to defeat jurisdiction. Stark should be
allowed to pursue discovery on this issue.
Finally, the Court notes, as detailed above, that Credit Suisse is
named as an LLC in the amended complaint, but the amended complaint
goes on to treat Credit Suisse as a corporation for jurisdictional purposes.
The Court needs clarity as to whether Credit Suisse is an LLC or a
corporation. If the former, Stark needs to establish, as with Apollo, the
citizenship of Credit Suisse members as of the time this action was initially
filed.

-7-

NOW, THEREFORE, BASED ON THE FOREGOING, IT IS
HEREBY ORDERED THAT:
1.

Stark’s motion for leave to conduct limited jurisdictional

discovery [ECF No. 62] is GRANTED; and
2.

The initial motions to dismiss filed by the defendants [ECF

Nos. 16, 19, 22, and 26] are DENIED as moot.
Dated at Milwaukee, Wisconsin, this 9th day of April, 2015.
BY THE COURT:
__________________________
HON. RUDOLPH T. RANDA
U.S. District Judge

-8-