In re Standard

• Decision Date: 03 June 2014
• Docket Number: No. 13–MD–2446 (JMF).,13–MD–2446 (JMF).
• Citation: 23 F.Supp.3d 378
• Parties: In re STANDARD & POOR'S RATING AGENCY LITIGATION. This Document Relates to All Actions.
• Court: U.S. District Court — Southern District of New York

23 F.Supp.3d 378

In re STANDARD & POOR'S RATING AGENCY LITIGATION.

This Document Relates to All Actions.

No. 13–MD–2446 (JMF).

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

Signed June 3, 2014

Motion granted. Linda Conti, Assistant Attorney General, Augusta, ME, James Depriest, Kevin Wells, Arkansas Attorney General's Office, Little Rock, AR, Brad Kevin Keogh, Nancy M. Bonnell, Susan Veronica Myers, Office of the Attorney General, Phoenix, AZ, Jennifer Miner Dethmers, State of Colorado Attorney General's Office, Denver, CO, Grant G. Moy, Jr., Bennett C. Rushkoff, Office of the Attorney General for the District of Columbia, Betsy Alexandra Miller, Kit A. Pierson, Mimi Y. Liu, Cohen, Milstein, Sellers & Toll, PLLC, Washington, DC, Blake Anthony Tyler, Stover Gadow & Tyler, Geoffrey C. Morgan, George W. Neville, Mary Jo Woods, Meredith McCollum Aldridge, Mississippi Attorney General's Office, Vaterria McQuitter Martin, Vaterria M. Martin, Attorney at Law, PLLC, Jackson, MS, John M. Abel, PA Office of Attorney General, Harrisburg, PA, Benjamin J. Roesch, Attorney General of Washington, Shannon E. Smith, Washington Attorney General, Seattle, WA, Alan Wilson, Clyde Havird Jones, Jr., Robert Dewayne Cook, SC Attorney General's Office, Jared Quante Libet, Office of Attorney General, John S. Simmons, John S. Simmons Law Offices, Columbia, SC, Donald C. Coggins, Jr., John Belton White, Jr., Harrison White Smith and Coggins, Spartanburg, SC, Gregory C. Strong, Jillian Amy Lazar, Delaware Department of Justice, Jillian G. Remming, Department of Justice, Wilmington, DE, B. Joyce Yeager, Joseph P. Bindbeutel, Missouri Attorney General's Office, Jefferson City, MO, Jane E. Hochberg, State of Idaho, Office of the Attorney General, Oscar S. Klaas, Idaho Attorney General's Office, Oscar S. Klaas, Boise, ID, Berkley Carrington Skinner IV, North American Reinsurance Corporation, Floyd Abrams, Jason M. Hall, Mihir Kshirsagar, Cahill Gordon & Reindel LLP, New York, NY, Jennifer L. Epperson, Philip A. Lehman, N.C. Dept. of Justice, Jennifer T. Harrod, N.C. Attorney General, Phillip Kevin Woods, State of North Carolina Department of Justice, Raleigh, NC, Danielle M Shelton, Holly M. Logan, Mark E. Weinhardt, Todd M. Lantz, Weinhardt & Logan PC, Jeffrey Scott Thompson, Steven Marc St. Clair, Iowa Attorney General's Office, Steven M St. Clair, Attorney General of Iowa, Des Moines, IA, Michael J. King, William Kyle Carpenter, Woolf, McClane, Bright, Allen & Carpenter, PLLC, Knoxville, TN, Justin G. Hazlett, Lisa S. Wolf, Office of the Attorney General, Indianapolis, IN, Brian Francis McDonough, Brian Francis McDonough, New Jersey Division of Law, Edward James Mullins, III, Newark, NJ, for Plaintiffs.

Berkley Carrington Skinner, N.C. Department of Justice, Raleigh, NC, pro se.

Adam Nelson Zurofsky, Errol Ismail, Floyd Abrams, Jason Hall, Krista Friedrich, Peter J. Linken, S. Penny Windle, Samantha Mary Walsh, Shilpa Narayan, Susan Buckley, Whitney M. Smith, Adam Nelson Zurofsky, Cahill Gordon & Reindel LLP, New York, NY, Brian Neil Hoffman, Randall J. Fons, Morrison & Foerster, LLP, Denver, CO, Charles Christian Sipos, David J. Burman, Perkins Coie, Seattle, WA, Christine Salmi, Richard C. Boardman, Perkins Coie, Boise, ID, Fred Krutz, III, John Chase Bryan, Mandie B. Robinson, Forman, Perry, Watkins, Krutz & Tardy, Jackson, MS, Holly L. Cline, Jack M. Stover, Jan L. Budman, II, Jayson R. Wolfgang, Buchanan Ingersoll & Rooney PC, Harrisburg, PA, Kathy Silberthau Strom, Cahill Gordon & Reindel LLP, Washington, DC, Kevin A. Crass, Martin A. Kasten, Friday, Eldredge & Clark, LLP, Little Rock, AR, Lee David Stein, Mary Bridget Minder, Perkins Coie LLP, Phoenix, AZ, Michael S. Smith, Sigmund D. Schutz, Preti, Flaherty, Beliveau, & Pachios, LLP, Portland, ME, Richard R. Wier, Jr., Shannon Larner Brainard, Marshall, Dennehey, Warner, Coleman & Goggin, Wilmington, DE, Adam Karl Doerr, Robinson, Bradshaw & Hinson, P.A., Charlotte, NC, Benjamin M. Johnston, Shook, Hardy & Bacon, LLP, Kansas City, MO, Danielle M. Shelton, Weinhardt & Logan PC, Des Moines, IA, David Coleman Kimball, Robinson Bradshaw and Hinson, Rock Hill, SC, E. Ashley Paynter, Bingham Greenebaum Doll LLP, Indianapolis, IN, for Defendants.

OPINION AND ORDER

JESSE M. FURMAN, District Judge:

This multidistrict litigation (“MDL”) proceeding, comprised of nineteen cases, pits States and the District of Columbia (collectively, the “States”) against a national credit-rating agency, McGraw Hill Financial, Inc. (formerly the McGraw–Hill Companies, Inc.) and its subsidiary, Standard & Poor's Financial Services LLC (collectively, “S & P”). (As discussed below, one of the States—Mississippi—also names Moody's Corporation and its subsidiary Moody's Investor's Service, Inc. (together, “Moody's”) as Defendants.) In seventeen of the cases (the “State Cases”), the States brought suit in their own courts to enforce state consumer-protection and deceptive trade practice laws, only to see S & P (and, in Mississippi, Moody's) remove the cases to federal court. The gravamen of the States' Complaints in those cases is that S & P (and, in the case of Mississippi, Moody's) misled the States' citizens in representing that bond ratings were objective and independent rather than influenced by undisclosed and unmanaged conflicts of interest. In the remaining two cases (the “Declaratory Judgment Cases”), S & P is on the plaintiff's side of the “v.” suing South Carolina and Tennessee. S & P filed those lawsuits just before the two States filed their civil enforcement actions in state court (actions that were subsequently removed and are among the State Cases that form part of this MDL). S & P principally seeks (1) declarations that the relief requested by South Carolina and Tennessee in their civil enforcement actions would be unconstitutional or otherwise violate federal law; and (2) injunctions against those two States' civil enforcement actions.

At this stage of these cases, the merits of the States' and S & P's claims are not at issue. Instead, the question is where the parties' disputes should be resolved—namely, whether they should be heard in federal court or in the relevant state courts. The States do not—and, in light of the Credit Rating Agency Reform Act of 2006, Pub.L. No. 109–291, 120 Stat. 1327 (2006) ( “CRARA”), cannot—dispute that there is a strong federal interest in the regulation of national credit-rating agencies, including S & P and Moody's (the two largest credit-rating agencies in the country). Instead, relying on the well-established proposition that federal courts are courts of limited jurisdiction, and citing the long history of States seeking to enforce their own consumer-protection and deceptive trade practices laws in their own courts, the States argue that their disputes with S & P and Moody's should be litigated in the state courts.

By contrast, the rating agencies contend that the disputes should be litigated in federal court. Specifically, S & P contends that all of the State Cases present substantial federal questions giving rise to jurisdiction under Title 28, United States Code, Section 1331. With respect to the Mississippi case, S & P and Moody's jointly argue in the alternative that jurisdiction is proper pursuant to either the “mass action” provisions of the Class Action Fairness Act of 2005, Pub.L. No. 109–2, 119 Stat. 4 (2005) (“CAFA”), or the general diversity statute, Title 28, United States Code, Section 1332(a). Finally, although the parties do not dispute the existence of federal jurisdiction with respect to the Declaratory Judgment Cases, South Carolina and Tennessee ask the Court to dismiss those cases in deference to their state civil enforcement actions.

Now pending are two joint motions raising these issues, addressed in three sets of briefs. First, all seventeen States involved in the MDL jointly move, pursuant to Rule 12(b)(1) of the Federal Rules of Civil Procedure, to remand the State Cases back to state court on the ground that, as pleaded, they arise solely under state law, not federal law. Mississippi joins in that motion, and—in light of the fact that S & P and Moody's removed its case on alternative grounds—argues in a separate set of briefs that federal jurisdiction is also lacking under both CAFA and the general diversity statute. In addition, Mississippi seeks an order directing S & P and Moody's to pay the State's attorney's fees and costs on the ground that the removal of the case was not objectively reasonable. Finally, Tennessee and South Carolina move to dismiss the Declaratory Judgment Cases brought by S & P, principally on the theory that the Court must refrain from deciding them in light of the States' parallel civil enforcement actions under the “abstention” doctrine established by the Supreme Court in Younger v. Harris, 401 U.S. 37, 91 S.Ct. 746, 27 L.Ed.2d 669 (1971).

For the reasons discussed below, the States' motions are granted (except insofar as Mississippi seeks attorney's fees and costs), the State Cases are all remanded back to state court, and the Declaratory Judgment Cases are dismissed altogether. That result is compelled by the fundamental and oft-repeated proposition that, while state courts are courts of general jurisdiction, federal courts “are courts of limited jurisdiction” and “possess only that power authorized by Constitution and statute, which is not to be expanded by judicial decree.” Rasul v. Bush, 542 U.S. 466, 489, 124 S.Ct. 2686, 159 L.Ed.2d 548 (2004) (internal quotation marks omitted). In light of that proposition, the Supreme Court has instructed that a federal court must “presume[ ] that a cause lies outside [its] limited jurisdiction, and the burden of establishing the contrary rests upon the party asserting jurisdiction.” Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377, 114 S.Ct. 1673, 128 L.Ed.2d 391 (1994) (citations omitted). The presumption against federal...