Cortlandt St. Recovery Corp. v. Hellas Telecomms., S.À.R.L.

• Decision Date: 24 June 2015
• Docket Number: Docket No. 13–3325.
• Citation: 790 F.3d 411
• Parties: CORTLANDT STREET RECOVERY CORP., Plaintiff–Appellant, v. HELLAS TELECOMMUNICATIONS, S.À.R.L., Hellas Telecommunications I, 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–Appellees.
• Court: U.S. Court of Appeals — Second Circuit

790 F.3d 411

CORTLANDT STREET RECOVERY CORP., Plaintiff–Appellant
v.
HELLAS TELECOMMUNICATIONS, S.À.R.L., Hellas Telecommunications I, 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–Appellees.^*

Docket No. 13–3325.

United States Court of Appeals, Second Circuit.

Argued: May 8, 2014.
Decided: June 24, 2015.

790 F.3d 414

Jared B. Stamell, Stamell & Schager, LLP, New York, N.Y. (Andrew R. Goldenberg, Stamell & Schager, LLP, New York, N.Y., on the brief), for Plaintiff–Appellant.

Robert S. Fischler, Ropes & Gray LLP, New York, N.Y. (Evan P. Lestelle, Ropes & Gray LLP, New York, N.Y., Paul M. O'Connor III, David J. Abrams, Kasowitz, Benson, Torres & Friedman LLP, New York, N.Y., on the brief), for Defendants–Appellees Hellas Telecommunications Co–Invest Ltd., Hellas Telecommunications Employees Ltd., TCW HT–Co–Invest I L.P., and TCW HT–Co–Invest II, L.P.

Dwight A. Healy, White & Case LLP, New York, N.Y. (Katherine J. Mims, of counsel, White & Case LLP, New York, N.Y., on the brief), for Defendants–Appellees Hellas Telecommunications, S.à.r.l., and Hellas Telecommunications I, S.à.r.l.

Before: JACOBS, SACK, and LYNCH, Circuit Judges.

Opinion

SACK, Circuit Judge:

This is an appeal from a judgment of the United States District Court for the Southern District of New York (J. Paul Oetken, Judge ) dismissing the plaintiff's claims without prejudice for lack of standing. The plaintiff appeals from that decision and from the district court's denial of the plaintiff's request to attempt to cure the standing defect by having the real party in interest “ratify, join, or be substituted into the action” pursuant to Fed.R.Civ.P. 17(a)(3). Because we agree that the plaintiff

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lacked standing to pursue its stated claims, and because we conclude that the district court did not abuse its discretion in declining to allow ratification, joinder, or substitution under Rule 17(a)(3), we affirm.

BACKGROUND

Cortlandt Street Recovery Corp. (“Cortlandt”), a New York corporation, is attempting to collect approximately € 83.1 million allegedly owed to it under defaulted “Subordinated Notes” (“Sub Notes”) issued in 2006 by a now-dissolved entity, Hellas Telecommunications (Luxembourg) II, S.C.A. (“Hellas II”). Cortlandt alleges that the holders of the Sub Notes, citizens severally of Greece, the British Virgin Islands, the Cayman Islands, and Gibraltar assigned Cortlandt a portion of the notes in 2011, thereby authorizing Cortlandt to bring the present action.¹

Cortlandt contends, in substance, that the private equity firms TPG Capital, L.P. (“TPG”) and Apax Partners, LLP (“Apax”), which are not parties to the present suit, used the Sub Notes to defraud their creditors. According to Cortlandt, TPG and Apax owned a group of related foreign companies including Hellas II and defendants Hellas Telecommunications, S.à.r.l. and Hellas Telecommunications I, S.à.r.l., also Luxembourg entities (the “Hellas Defendants”). Cortlandt alleges that TPG and Apax issued promissory notes, in the name of one of the Hellas Defendants, pledging TPG's and Apax's equity in the company and its subsidiaries as collateral. According to Cortlandt, the firms then used the proceeds from this sale to buy their own collateral, rendering the Hellas entities insolvent.

Cortlandt argues that this process—termed a “bleed-out”—rendered both the Hellas Defendants and several now-dissolved foreign investment funds that owned or financed the Hellas entities² (the “Sponsor Defendants”) liable to the noteholders or their assignees. In November 2012, Cortlandt, as purported assignee of the Sub Notes, filed a complaint against both sets of defendants in the United States District Court for the Southern District of New York claiming, inter alia, the right to payment under the Sub Notes, breach of contract, violations of prohibitions on distributions, fraudulent conveyances, and unjust enrichment. Cortlandt requested relief in the form of payment of the amounts owed on the Sub Notes, plus interest, and fees, costs, and expenses.

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Cortlandt also filed several other lawsuits in state and federal court seeking to collect on the Sub Notes and on another tranche of notes it claims it was assigned, the so-called “PIK Notes,”³ which are not at issue in this case. See, e.g., Cortlandt St. Recovery Corp. v. Aliberti, No. 12 CIV. 8686 JPO, 2014 WL 941900, 2014 U.S. Dist. LEXIS 32041 (S.D.N.Y. Mar. 11, 2014), on reconsideration, 2014 WL 6907548, 2014 U.S. Dist. LEXIS 170277 (S.D.N.Y. Dec. 9, 2014) ; Cortlandt St. Recovery Corp. v. Deutsche Bank AG, London Branch, No. 12 CIV. 9351 JPO, 2013 WL 3762882, 2013 U.S. Dist. LEXIS 100741 (S.D.N.Y. July 18, 2013), appeal dismissed (Sept. 16, 2013); Cortlandt St. Recovery Corp. v. Hellas Telecomms., S.à.r.l., 47 Misc.3d 544, 996 N.Y.S.2d 476 (Sup.Ct.2014) (consolidating four actions initiated by Cortlandt on the Sub and PIK Notes).

In one of these other actions, Cortlandt brought suit on the Sub Notes against Deutsche Bank AG, London Branch (“Deutsche Bank”), alleging it to be an underwriter of the Sub Notes. Cortlandt St. Recovery Corp. v. Deutsche Bank AG, London Branch, No. 12 CIV. 9351 JPO, 2013 WL 3762882, 2013 U.S. Dist. LEXIS 100741 (S.D.N.Y. July 18, 2013) (the “Deutsche Bank Opinion ”), appeal dismissed (Sept. 16, 2013); see also Complaint at 2, Cortlandt St. Recovery Corp. v. Deutsche Bank AG, London Branch, No. 12 CIV. 9351 JPO, 2013 WL 3762882 (S.D.N.Y.2013). In both the Deutsche Bank action and the present one, the defendants moved to dismiss on several grounds, including that the court lacked subject matter jurisdiction over the action. See Fed.R.Civ.P. 12(b)(1). Specifically, the defendants argued that Cortlandt lacked title to the Sub Notes and therefore lacked Article III standing to bring claims related to those notes. See Deutsche Bank Op., 2013 WL 3762882, at *1 & n. 1, 2013 U.S. Dist. LEXIS 100741, at *1 & n. 1.

The district court granted the defendants' motions to dismiss in both cases. In July 2013, the court issued an order and opinion in the Deutsche Bank case concluding that Cortlandt had failed adequately to plead title to claims arising under the Sub Notes and that Cortlandt had therefore failed adequately to plead facts on which Article III standing could be based. See Deutsche Bank Op., 2013 WL 3762882, at *3, 2013 U.S. Dist. LEXIS 100741, at *9–10. In August 2013, the court issued an order in the present action explaining that the action was dismissed without prejudice “[f]or the reasons set forth in [the Deutsche Bank Opinion].” Order, Cortlandt St. Recovery Corp. v. Aliberti, No. 12 Civ. 8685 JPO (S.D.N.Y. Aug. 2, 2013).⁴

Cortlandt appealed.

DISCUSSION

Cortlandt argues that the district court erred in granting the defendants' motion to dismiss its complaint for lack of subject matter jurisdiction pursuant to Fed.R.Civ.P. 12(b)(1). Cortlandt further asserts that the district court erred in failing to grant to it the opportunity to cure any standing defect under Fed.R.Civ.P. 17(a)(3), which allows for “the real party in interest to ratify, join, or be substituted into” a pending action. We disagree with both contentions.

I. Standard of Review

A district court properly dismisses an action under Fed.R.Civ.P. 12(b)(1) for lack of subject matter jurisdiction if the

790 F.3d 417

court “lacks the statutory or constitutional power to adjudicate it,” Makarova v. United States, 201 F.3d 110, 113 (2d Cir.2000), such as when (as in the case at bar) the plaintiff lacks constitutional standing to bring the action. See W.R. Huff Asset Mgmt. Co., LLC v. Deloitte & Touche LLP, 549 F.3d 100, 104, 106 (2d Cir.2008) ; see also Alliance for Envtl. Renewal, Inc. v. Pyramid Crossgates Co., 436 F.3d 82, 88 n. 6 (2d Cir.2006) (“[T]he proper procedural route [for standing challenges at the pleadings stage] is a motion under Rule 12(b)(1).”). On appeal from a dismissal under Rule 12(b)(1), we review the court's factual findings for clear error and its legal conclusions de novo. Makarova, 201 F.3d at 113.

The plaintiff bears the burden of “alleg[ing] facts that affirmatively and plausibly suggest that it has standing to sue.” Amidax Trading Grp. v. S.W.I.F.T. SCRL, 671 F.3d 140, 145 (2d Cir.2011). In assessing the plaintiff's assertion of standing, “we accept as true all material allegations of the complaint[ ] and ... construe the complaint in favor of the complaining party.” W.R. Huff, 549 F.3d at 106 (internal quotation marks omitted). In deciding a Rule 12(b)(1) motion, the court may also rely on evidence outside the complaint. Makarova, 201 F.3d at 113.

“[A] district court's decision whether to dismiss pursuant to Rule 17(a) is reviewed for abuse of discretion.” Stichting Ter Behartiging Van de Belangen Van Oudaandeelhouders In Het Kapitaal Van Saybolt Int'l B.V. v. Schreiber, 407 F.3d 34, 43–44 (2d Cir.), certified question accepted, 5 N.Y.3d 730, 799 N.Y.S.2d 769, 832 N.E.2d 1185 (2005), certified question...