Pub. Employees Ret. Ass'n of New Mexico v. Clearlend Sec.

Decision Date29 June 2012
Docket NumberNo. CIV 11-0931 JB/WDS,CIV 11-0931 JB/WDS
PartiesPUBLIC EMPLOYEES RETIREMENT ASSOCIATION OF NEW MEXICO, Plaintiff, v. CLEARLEND SECURITIES f/k/a WACHOVIA GLOBAL SECURITIES LENDING f/k/a METROPOLITAN WEST SECURITIES, L.L.C.; WACHOVIA BANK, N.A.; and WELLS FARGO & COMPANY, Defendants.
CourtU.S. District Court — District of New Mexico
MEMORANDUM OPINION AND ORDER

THIS MATTER comes before the Court on the Motion to Remand the Case to State Court and for the Payment of Costs and Expenses Including Attorney's Fees, filed November 17, 2011 (Doc. 5)("Second Motion to Remand"). The Court held a hearing on April 4, 2012. The primary issues are: (i) whether the Court has jurisdiction to decide the Second Motion to Remand; (ii) whether Plaintiff Public Employees Retirement Association ("PERA") is an arm of the State of New Mexico, such that the Court should remand the case to state court; and (iii) if the Court should so rule, whether the Court should award the PERA the attorney's fees and costs associated with its motion to remand pursuant to 28 U.S.C. § 1447(c). The Court will grant in part and deny in part the Second Motion to Remand. The Court finds that it has the authority to decide the Second Motion to Remand. The Court finds that the PERA is an arm of the state and therefore not a citizen of New Mexico for the purposes of diversity jurisdiction. The Court will therefore remand this case to state court based on its lack of subject-matter jurisdiction. The Court will not, however, order that theDefendants bear the PERA's costs and expenses, including attorney's fees, pursuant to 28 U.S.C. § 1447(c), because the Court concludes that the Defendants had an objectively reasonable basis for seeking removal.

PROCEDURAL BACKGROUND

The PERA originally filed this case in the First Judicial District Court, County of Santa Fe, State of New Mexico on October 20, 2010. See Pub. Emps. Ret. Ass'n of N.M. v. Clearlend Sec., No. CIV 10-1102, Complaint for Breach of Contract and Breach of Fiduciary Duty (dated October 20, 2010), filed November 18, 2010 (Doc. 1-1)("Complaint"). In the first Count of the Complaint, the PERA alleges a breach of contract against the Defendants for purchasing notes from "non-United States issuers." Complaint at 18. It asserts that its contract required that "(a)ll cash investment Collateral must be made in U.S. dollars and be from domestic U.S. issuers only," and that the Defendants violated this provision when they purchased notes from Victoria Finance, Ltd and Sigma Finance Corporation, because those structured investment vehicles are not domestic United States issuers. Complaint ¶ 83, at 18. In its second Count, the PERA alleges a breach of contract for failure to exercise the required standard of care. See Complaint at 19. The PERA asserts that "Wachovia held itself out 'as an expert in the handling of investments of large trust funds and in the handling of securities lending programs,' and 'represented itself as being possessed of greater knowledge and skill than the average person.'" Complaint ¶ 88, at 19.1 The PERA further asserts that the Defendants breached their duty "by failing to execute [their] obligations of the Contract as an expert and a fiduciary and failing to conduct due diligence before purchasing the notes in Victoria and Sigma." Complaint ¶ 89, at 19. In its third Count, the PERA alleges a breach of fiduciary dutyfor failing to conduct due diligence. See Complaint at 20. It asserts that the "discretionary investment relationship between Wachovia and PERA created a fiduciary duty to manage the fund's investments with the utmost good faith requiring a specific duty of care." Complaint ¶ 94, at 20. The PERA contends that the Defendants breached their fiduciary duty to the PERA "by failing to conduct due diligence prior to investing in the risk medium-term notes, especially given that protecting PERA's principal was the primary investment objective of the securities lending agreement." Complaint ¶ 97, at 20. In Count 4, the PERA alleges a breach of fiduciary duty for failing to sell the medium term notes. See Complaint at 20. The PERA contends that, as a fiduciary, "Wachovia was also required to monitor PERA's investments" and that "Wachovia breached its fiduciary duty by failing to conduct due diligence as red flags repeatedly appeared and recommending that PERA not sell the notes." Complaint ¶¶ 100-01, at 20.

On November 18, 2010, the Defendants removed that case to the United States District Court for the District of New Mexico, and the case was assigned to the Honorable John E. Conway, Senior United States District Judge. See Pub. Emps. Ret. Ass'n of N.M. v. Clearlend Sec., No. CIV 10-1102, Notice of Removal, filed November 18, 2010 (Doc. 1)("First Notice of Removal"). The Defendants asserted that there was federal jurisdiction under 28 U.S.C. § 1332, because there was diversity of citizenship and because the amount in controversy exceeded $75,000.00. See First Notice of Removal ¶ 4, at 2. The PERA then filed a motion to remand. See Pub. Emps. Ret. Ass'n of N.M. v. Clearlend Sec., No. CIV 10-1102, Motion to Remand the Case to State Court and For the Payment of Costs and Expenses Including Attorneys' Fees, filed December 20, 2010 (Doc. 8)("First Motion to Remand"). The PERA argued that the Defendants had failed to prove that the PERA is a "citizen" of New Mexico and contended that the PERA is an arm of the state. See First Motion to Remand at 9. On July 18, 2011, Judge Conway granted in part and denied in part the First Motionto Remand. See Pub. Emps. Ret. Ass'n of N.M. v. Clearlend Sec., No. CIV 10-1102, Memorandum Opinion and Order at 12-13, filed July 18, 2011 (Doc. 39)("Conway MOO"). Judge Conway found that the Defendants had "not sufficiently alleged diversity of citizenship in their Notice of removal, the removal was premature and discovery is not permissible in this Court because no dispute exists regarding the facts as stated." Conway MOO at 12. He noted his concern "regarding the litigation tactics that appear to be at work on both sides of the matter" and held that he could not "say that Defendants had no objectively reasonable basis for removing." Conway MOO at 12.

1. Second Notice of Removal.

On October 18, 2011, the Defendants filed a second Notice of Removal to the United States District Court for the District of New Mexico. See Doc. 1 ("Second Notice of Removal"). The Defendants assert that "[o]riginal jurisdiction exists in this Court pursuant to 28 U.S.C. § 1332 because (a) the amount in controversy exceeds $75,000, exclusive of interest and costs; and (b) complete diversity of citizenship exists between Defendants and PERA." Second Notice of Removal ¶ 8, at 3. They argue that, in the Complaint, the PERA seeks "damages in excess of $75,000 in that PERA alleges a total of $102.8 million in realized and unrealized investment losses." Second Notice of Removal ¶ 9, at 3. The Defendants assert that: (i) Defendant Clearlend Securities, as a division of Defendant Wells Fargo & Company, does not possess citizenship separate and apart from Wells Fargo; (ii) Wells Fargo is a citizen of Delaware and California; and (iii) Defendant Wachovia Bank, N.A., which merged with Wells Fargo Bank, N.A. in March 2010, is a citizen of South Dakota. See Second Notice of Removal ¶¶ 10-11, at 3-4.

The Defendants then argue that the PERA is a citizen of the State of New Mexico. See Second Notice of Removal at 4. They assert that the PERA is "an entity organized under the laws of the State of New Mexico with its principal place of business in New Mexico." Second Noticeof Removal ¶ 12, at 4. The Defendants acknowledge that "states are not considered 'citizens' for diversity purposes under 28 U.S.C. § 1332 because the Eleventh Amendment's sovereign immunity bars private parties from suing a state in federal court." Second Notice of Removal ¶ 13, at 4. They argue, however, that "entities such as PERA that are connected with the state or formed under state statute do not always share in their state's immunity." Second Notice of Removal ¶ 13, at 4 (citing Sturdevant v. Paulsen, 218 F.3d 1160, 1164 (10th Cir. 2000)). The Defendants assert that those entities which do not share in the state's Eleventh Amendment immunity are "citizens of the state in which they are located and are subject to diversity jurisdiction in federal court." Second Notice of Removal ¶ 14, at 5 (citing Sherman v. Curators of Univ. of Mo., 16 F.3d 860, 862 n.2 (8th Cir. 1994)). They further assert that the United States Court of Appeals for the Tenth Circuit has established a five-factor test to determine whether an agency is an arm of the state: (i) whether a judgment against the governmental unit would be payable out of the state treasury or out of the governmental's unit's own funds; (ii) the characterization of the governmental unit under state law; (iii) the guidance and control that the state exercises over the governmental unit; (iv) the degree of funding that the state gives the governmental unit; and (v) the governmental unit's ability to issue bonds and levy taxes on its own behalf. See Second Notice of Removal ¶ 16, at 5 (citing Lucero v. N.M. Lottery, No. 07-499, 2008 WL 7467977 (D.N.M. July 7, 2008)(Herrera, J.)). The Defendants contend that a number of courts have held that "other retirement systems similar to PERA are not 'arms' of the state that created them . . . largely due to their fiscal autonomy and the lack of an obligation on the state's part to pay the systems' debts." Second Notice of Removal ¶ 17, at 6 (citing Roche v. Lincoln Prop. Co., 175 F.App'x 597, 600-01 (4th Cir. 2006)(unpublished); Blake v. Kline, 612 F.2d 718, 721-26 (3d Cir. 1979); Rivera-Torres v. Sistema de Para Maestros, Inc., 453 F.Supp.2d 383, 386-87 (D.P.R. 2006); Accenture LLP v. CSDV-MN Ltd. P'ship, No. 06-1270, 2006WL 3825029, at *2-3 (N.D. Ill. Dec. 27, 2006); Travelers Ins. Co. v. Teacher Ret. Sys. of Tex., No. 92 C 6651, 1993 WL...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT