Citigroup, Inc. v. Wachovia Corp., 08 Civ. 8668(SAS).

• Citation: 613 F.Supp.2d 485
• Decision Date: 20 March 2009
• Docket Number: No. 08 Civ. 8668(SAS).,08 Civ. 8668(SAS).
• Parties: CITIGROUP, INC., Plaintiff, v. WACHOVIA CORP., et al., Defendants.
• Court: United States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York

613 F.Supp.2d 485

CITIGROUP, INC., Plaintiff, v. WACHOVIA CORP., et al., Defendants.

No. 08 Civ. 8668(SAS).

United States District Court, S.D. New York.

March 20, 2009.

COPYRIGHT MATERIAL OMITTED

Gregory P. Joseph, Esq., Pamela Jarvis, Esq., Sandra M. Lipsman, Esq., Mara Leventhal, Esq., Rachel M. Cherington, Esq., Samuel N. Fraidin, Esq., Gregory P. Joseph Law Office LLC, Paul A. Engelmayer, Esq., Charles C. Platt, Esq., Wilmer, Cutler, Hale & Dorr, L.L.P. (N.Y.C), New York, NY, for Citigroup.

Eric Seiler, Esq., Bruce S. Kaplan, Esq., Andrew W. Goldwater, Esq., Andrew W. Shilling, Esq., Friedman, Kaplan, Seiler and Adelman, New York, NY, for Wachovia and Wells Fargo.

OPINION AND ORDER

SHIRA A. SCHEINDLIN, District Judge.

THE COURT: "If it acts like a defense and sounds like a defense and quacks like a defense, then it's a defense."

March 11, 2009 Oral Argument

I. INTRODUCTION

On October 9, 2008, defendants Wachovia Corporation and Wells Fargo & Company removed this action ("the pending action")—and an earlier action based on the same facts ("the original action")—to federal court pursuant to section 1441 of title 28 of the United States Code. Citigroup Incorporated now moves to strike the notice of removal of both actions or remand the pending action to state court. Citigroup also requests costs and fees for filing this motion. For the reasons stated below, Citigroup's motion to strike the notice of removal in the original action is denied, its motion to remand the pending action is granted, and its motion for costs and fees is also granted.

II. BACKGROUND

In September 2008, in the midst of a substantial credit and liquidity crisis that led to the collapse of many other banks, the Federal Deposit Insurance Corporation ("FDIC"), the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, and the Federal Reserve Bank of New York ("FRBNY") stepped in to orchestrate a rescue of Wachovia.¹ Subsequently, Wells Fargo entered merger negotiations with the ailing bank.² On September 28, however, Wells Fargo decided not to participate in Wachovia's rescue.³

On September 29, Citigroup reached an agreement-in-principle with Wachovia to acquire the bank and rescue it from FDIC receivership.⁴ The two banks also entered into an exclusivity agreement pursuant to which Wachovia "agreed not to negotiate or enter into any competing acquisition agreement during the exclusivity period" which was to end on October 6.⁵ Around October 3, as Citigroup and Wachovia were nearing the signing of a deal, Wachovia received an acquisition offer from Wells Fargo which it subsequently accepted and announced to the public.⁶ One of the differences between Citigroup's and Wells Fargo's offers was that the latter triggered the golden parachutes of Wachovia CEO Robert Steel and other senior executives such that they received a $225 million windfall.⁷

On October 4, Citigroup commenced the original action against Wachovia and Wells Fargo, alleging breach of contract against Wachovia for violating the exclusivity agreement, tortious interference with contract against Wells Fargo, and that the merger agreement between the defendants should be invalidated pursuant to section 126(c) of the Emergency Economic Stabilization Act ("EESA").⁸ Section 126(c) of the EESA provides in its entirety that:

No provision contained in any existing or future standstill, confidentiality, or other agreement that, directly or indirectly (A) affects, restricts, or limits the ability of any person to offer to acquire or acquire, (B) prohibits any person from offering to acquire or acquiring, or (C) prohibits any person from using any previously disclosed information in connection with any such offer to acquire or acquisition of, all or part of any insured depository institution, including any liabilities, assets, or interest therein, in connection with any transaction in which the Corporation exercises its authority under section 11 or 13, shall be enforceable against or impose any liability on such person, as such enforcement or liability shall be contrary to public policy.

Later that day, the original action was removed to federal court by the defendants and then dismissed by Citigroup.⁹ Citigroup then commenced the pending action in state court, this time omitting the cause of action under the EESA.¹⁰ Citigroup subsequently sent defendants a "conformed" Verified Complaint which is the operative Complaint in the pending action.¹¹ This Complaint, however, contains a request for relief under the EESA in its Prayer for Relief.¹²

Meanwhile, Wachovia had filed a separate action against Citigroup in this Court seeking a declaratory judgment that the Wells Fargo-Wachovia merger was "valid, proper, and not prohibited by [the exclusivity agreement between Citigroup and Wachovia]."¹³ This Court issued an Order to Show Cause why Citigroup should not be preliminarily enjoined from interfering with the Wachovia-Wells Fargo merger.¹⁴ The state court also entered an Order to Show Cause why Wachovia and Wells Fargo should not be preliminarily enjoined from completing the merger in this action.¹⁵

On October 6, at the behest of the FRBNY, Citigroup, Wells Fargo, and Wachovia entered into a Standstill Agreement pursuant to which they agreed to refrain from all "formal litigation activity."¹⁶ The standstill period was to end on October 8.¹⁷ Prior to the end of the period, the parties decided to extend the agreement until October 10.¹⁸

On October 9, Citigroup published a press release announcing that it was unable to reach an agreement with Wells Fargo.¹⁹ Citigroup stated that it was still willing to complete a transaction with Wachovia and that it planned to pursue damage claims against Wachovia, Wells Fargo, and their officers and directors for breach of contract and tortious interference with contract.²⁰ After receipt of this press release, Wachovia and Wells Fargo filed their notices of removal of the original action-dismissed on October 4-and the pending action.²¹ The original action was assigned docket number 08 Civ. 8666, while the pending action was assigned docket number 08 Civ. 8668. Removal of the pending action was predicated on Citigroup's reference to the EESA in the Prayer for Relief, which the defendants claimed supported the exercise of federal jurisdiction under section 1331 of title 28 of the United States Code.²²

III. LEGAL STANDARD

A. Motion to Strike

In considering a motion to strike, courts generally apply the same test used to determine a motion to dismiss pursuant to Federal Rule of Civil Procedure Rule 12(b)(6).²³ Motions to strike are generally disfavored and will be denied unless the matter asserted clearly has no bearing on the dispute²⁴ or the matter is significantly prejudicial to one of the parties.²⁵

B. Motion to Remand

Section 1441(a) of title 28 of the United States Code allows the removal of "any civil action brought in a State court of which the district courts of the United States have original jurisdiction" to federal court. Section 1331 of title 28 of the United States Code provides that a federal court has "original jurisdiction" over "all civil actions arising under the Constitution, laws, or treaties of the United States."

1. The Well-Pleaded Complaint Rule

"As a general rule, absent diversity jurisdiction, a case will not be removable if the complaint does not affirmatively allege a federal claim."²⁶ To determine whether the claim arises under federal law, a court examines the "well-pleaded" allegations of the complaint and ignores potential defenses: "[A] suit arises under the Constitution and laws of the United States only when the plaintiff's statement of his own cause of action shows that it is based upon those laws or that Constitution."²⁷ Under the well-pleaded complaint rule, "the plaintiff is the master of the claim; he or she may avoid federal jurisdiction by exclusive reliance on state law."²⁸

In addition, "[j]urisdiction may not be sustained on a theory that the plaintiff has not advanced."²⁹ Indeed, "`[i]t is not enough that a plaintiff alleges some anticipated defense to his cause of action and asserts that the defense is invalidated by some provision of the Constitution of the United States.'"³⁰ "Thus, a defense that relies on the preclusive effect of a prior federal judgment[] or the preemptive effect of a federal statute[] will not provide a basis for removal."³¹ "Nor can federal jurisdiction rest upon an actual or anticipated counterclaim."³²

2. Federal Preemption

Where a plaintiff asserts no federal cause of action on the face of the complaint, the court then looks to whether one of three situations exists such that the state law action may nevertheless be removed to federal court: (1) "when Congress expressly so provides;" (2) "when a federal statute wholly displaces the statelaw cause of action through complete preemption;"³³ and (3) where an element of the plaintiffs state law claim turns on a substantial federal question and exercising jurisdiction would not disrupt the balance intended by Congress between state and federal courts.³⁴ An example of the first situation is the Price-Anderson Act, which contains "an unusual preemption provision [] that not only gives federal courts jurisdiction over tort actions arising out of nuclear accidents but also expressly provides for removal of such actions brought in state court even when they assert only state-law claims."³⁵

To determine whether the second situation—complete preemption—applies, a court must (1) look to whether the federal statute provides "the exclusive cause of action for the claim asserted and also set[s] forth procedures and remedies governing that cause of action" and (2) determine whether Congress intended such causes of action to be treated as "arising under the laws of the United States ...."³⁶ The Supreme Court has found complete preemption for certain causes of action under only three sta...