Firefighters' Ret. Sys. v. Consulting Grp. Servs., LLC

• Citation: 541 B.R. 337
• Decision Date: 14 September 2015
• Docket Number: Civil Action No. 14–103–SDD–SCR
• Parties: Firefighters' Retirement System, et al. v. Consulting Group Services, LLC, et al.
• Court: U.S. District Court — Middle District of Louisiana

541 B.R. 337

Firefighters' Retirement System, et al. v. Consulting Group Services, LLC, et al.

Civil Action No. 14–103–SDD–SCR

United States District Court, M.D. Louisiana.

Signed September 14, 2015

Phillip W. Preis, Caroline Dana Preis, Charles Malcolm Gordon, Charles M. Thompson, Crystal Dibenedetto Burkhalter, Jennifer Rae Dietz, John Neher Grinton, Preis Gordon, APLC, Baton Rouge, LA, for Plaintiffs, Firefighters' Retirement System, Municipal Employees' Retirement System and New Orleans Firefighters' Pension & Relief Fund.

Paul James Masinter, Justin P. Lemaire, Michael Q. Walshe, Jr., Nicholas John Wehlen, Stone, Pigman, Walther, Wittmann, LLC, Amelia Williams Koch, Kathlyn G. Perez, John B. Davis, II, Baker, Donelson, Bearman, Caldwell & Berkowitz, New Orleans, LA, Grant J. Esposito, Jessica L. Kaufman, Morrison & Foerster LLP, New York, NY, for Defendants, Consulting Services Group, LLC and Grant Thornton, LLP.

RULING

SHELLY D. DICK, DISTRICT JUDGE, MIDDLE DISTRICT OF LOUISIANA

The Court has carefully considered the Petition¹, the record, the law applicable to this action, and the Report and Recommendation² of United States Magistrate Judge Stephen C. Riedlinger dated August 25, 2015. Plaintiffs have filed an Objection³ which the Court has also considered.

The Court hereby approves the Report and Recommendation of the Magistrate Judge and adopts it as the Court's opinion herein.

Accordingly, the Motion to Remand⁴ filed by the Plaintiffs is denied.

MAGISTRATE JUDGE'S REPORT

STEPHEN C. RIEDLINGER, UNITED STATES MAGISTRATE JUDGE

Before the court is a Motion to Remand filed by plaintiffs, the Firefighters' Retirement System, Municipal Employers' Retirement System of Louisiana and New Orleans Firefighters' Pension and Relief Fund (hereafter, “plaintiffs”). Record document number 17. The motion is opposed.¹

Plaintiffs filed a Petition for Damages in state court against defendants Grant Thornton, LLP, (“Grant Thornton”) and Consulting Services Group, LLC (“CSG”).² In their Petition the plaintiffs alleged claims against Grant Thornton under the following theories of liability based on Louisiana state laws: (1) the Louisiana Securities Act; (2) detrimental reliance; (3) negligence and negligent misrepresentation; (4) third party beneficiary; and, (5) the Louisiana Unfair Trade Practices Act. Against CSG, the plaintiffs alleged claims for breach of contract and a violation of the Louisiana Unfair Trade Practices Act. Plaintiffs did not allege claims under federal law against any of the defendants.

Defendant CSG removed the petition to this court based on the following grounds: (1) jurisdiction under 28 U.S.C. § 1334(b), which provides that “the district courts shall have original but not exclusive jurisdiction of all civil proceedings arising under title 11, or arising in or related to cases under title 11”; and (2) diversity jurisdiction under 28 U.S.C. § 1332(a).³ Defendant Grant Thornton consented to the removal.⁴

With regard to jurisdiction under § 1334(b), the defendant alleged in its Notice of Removal that this case is related to three separate bankruptcy cases, all of which are pending in the United States Bankruptcy Court for the Southern District of New York: In re Fletcher International, Ltd., Case No. 12–12796 (“FIL Bankruptcy”); In re FIA Leveraged Fund (In Liquidation), Case No. 14–10093 (“Leveraged Bankruptcy”); In re Fletcher Income Arbitrage Fund Ltd. (In Liquidation), Case No. 14–10094 (“Arbitrage Bankruptcy”). The FIL Bankruptcy is proceeding under Chapter 11, while the Leveraged Bankruptcy and Arbitrage Bankruptcy are proceeding under Chapter 15.⁵

Defendant also alleged that removable is based on diversity jurisdiction. According to the defendant, the plaintiff retirement funds are Louisiana citizens, none of the defendants' members or partners are Louisiana citizens, and the jurisdictional amount is satisfied.⁶

Plaintiffs moved to remand based on a lack of subject matter jurisdiction, and alternatively, based on mandatory and permissive abstention under 28 U.S.C. § 1334(c)(1) and (2) for actions related to bankruptcy cases.

Based on the applicable law, the analysis previously done in two related cases,⁷ and the analysis that follows, the plaintiffs' Motion to Remand should be denied.

Background

This case arises out of the same facts and circumstances presented in Firefighters' Retirement System, et al. v. Citco Group Limited, et al., CV 13–373–SDD–SCR. The background facts set forth in the Magistrate Judge's Report issued in CV 13–373–SDD–SCR will not be repeated and are incorporated by reference in this report.⁸ The following summary includes only information pertinent to the plaintiffs' allegations against Grant Thornton and CSG.

Plaintiffs alleged that Grant Thornton was retained as an independent auditor of Leveraged and prepared initial and restated audits for the years ending in December 31, 2007 and December 31, 2008. Plaintiffs alleged that Grant Thornton negligently failed to inform plaintiffs of material facts related to fraud and conflicts of interest on the part of Leveraged that resulted in the plaintiffs losing their $100 million investment in the Series N Shares issued by Leveraged. Plaintiffs claimed that Grant Thornton prepared Initial Statements and Restated Financial Statements and omitted material facts that would have caused the plaintiffs not to invest in Leveraged and Arbitrage. Plaintiffs asserted that the restated audits contained misleading information that prevented the plaintiffs from exercising their redemption rights. Thus, as a result of Grant Thornton's breach of obligations and duties owed to the plaintiffs and its violations of Louisiana law, the plaintiffs suffered the loss of their $100 million investment and other economic damages.

Plaintiffs asserted that CSG is also liable for these damages. Plaintiffs alleged that CSG was hired as an investment advisor to counsel them with regard to their investment in Leveraged. However, plaintiffs claimed that during the period of its contract with the plaintiffs CSG had an undisclosed agreement with Citco Group Limited and Alphonse “Buddy” Fletcher, Jr. whereby CSG received compensation from them for each period that the plaintiffs did not redeem their shares. Plaintiffs alleged that CSG's actions constituted breach of contract and a violation of Louisiana's law prohibiting unfair trade practices.

Applicable Law

General Principles

The removing party bears the burden of establishing federal jurisdiction over a state court suit. Carpenter v. Wichita Falls Independent School Dist., 44 F.3d 362, 365 (5th Cir.1995). As with removal under the general provision of § 1441(a), the existence of subject matter jurisdiction is determined as of the time of removal. In re Bissonnet Investments LLC, 320 F.3d 520, 525 (5th Cir.2003); In re Legal Xtranet, Inc., 453 B.R. 699, 703–04 (W.D.Tex.2011). Thus, if “related to” jurisdiction exists at the time of removal, subsequent events do not divest the district court of subject matter jurisdiction. In re Enron Corp. Securities, 535 F.3d 325, 336 (5th Cir.2008). Generally, the “well-pleaded complaint” rule applies only to statutory “arising under” cases. American National Red Cross v. S.G., 505 U.S. 247, 258, 112 S.Ct. 2465, 120 L.Ed.2d 201 (1992). Therefore, the “well-pleaded complaint” rule is used to determine whether there is “arising under” jurisdiction in bankruptcy, but it is not applicable in “related to” bankruptcy removal cases. In re Enron Corp. Securities, Derivative & ERISA Litigation, 511 F.Supp.2d 742, 764 (S.D.Tex.2005); In re Brooks Mays Music Co., 363 B.R. 801, 814–15 (N.D.Tex.2007).

Contractual Waiver of Right to Remove

For a contractual clause to prevent a party from exercising its right to removal, the clause must be a clear and unequivocal waiver of that right. City of New Orleans v. Municipal Admin. Services, 376 F.3d 501, 504 (5th Cir.2004). The waiver, however, is not required to contain explicit words such as “waiver of right of removal.” Waters, supra ; Dixon v. TSE Intern. Inc., 330 F.3d 396 (5th Cir.2003)(per curiam). A party may waive its removal rights by explicitly stating that it is doing so, by allowing the other party the right to choose venue⁹ or by establishing an exclusive venue within the contract. A party's consent to jurisdiction in one forum does not necessarily waive its right to have an action heard in another. Thus, for a forum selection clause to be exclusive it must go beyond establishing that a certain forum will have jurisdiction and must clearly demonstrate the intent to make that jurisdiction exclusive. City of New Orleans, supra.

The principles of contract interpretation under Louisiana law are well-established. Interpretation of a contract is the determination of the intent of the parties. Except for technical terms, the words of a contract must be given their generally prevailing meaning. Each provision must be read in light of the others so that each is given the meaning suggested by the contract as a whole. If the words of a contract are clear and explicit and lead to no absurd consequences, no further interpretation may be made in search of the parties' intent and the agreement must be enforced as written. Louisiana Civil Code Articles 2045, , , . Taita Chemical Co. Ltd. v. Westlake Styrene Corp., 246 F.3d 377, 386 (5th Cir.2001). A contract is ambiguous if, after applying the rules of contract interpretation, the contract is uncertain as to the parties' intent and susceptible to more than one reasonable interpretation under the circumstances.

Riverwood Intern. Corp. v. Employers Ins. of Wausau, 420 F.3d 378, 382 (5th Cir.2005).

Under Louisiana law, waiver is defined as the intentional relinquishment of a known right, power or privilege. Taita Chemical, 246 F.3d at 388, citing, Steptore v. Masco Constr. Co., 93–2064 (La.8/18/94), 643 So.2d 1213, 1216. Waiver requires that there first be an existing right and that a party have knowledge of that...