Ritchie Capital Mgmt., L.L.C. v. JPMorgan Chase & Co.

• Decision Date: 10 November 2014
• Docket Number: No. 14 Civ. 2557LGS.,14 Civ. 2557LGS.
• Citation: 532 B.R. 461
• Parties: RITCHIE CAPITAL MANAGEMENT, L.L.C., et al., Plaintiffs, v. JPMORGAN CHASE & CO., et al., Defendants.
• Court: U.S. District Court — Southern District of New York

532 B.R. 461

RITCHIE CAPITAL MANAGEMENT, L.L.C., et al., Plaintiffs

v.JPMORGAN CHASE & CO., et al., Defendants.

No. 14 Civ. 2557LGS.

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

Signed Nov. 10, 2014.

James William Halter, Jeffrey Lew Liddle, Liddle & Robinson LLP, New York, NY, for Plaintiff.

Kevin Timothy Baumann, Dennis H. Tracey, III, Hogan Lovells US LLP, Ronald S. Beacher, Day Pitney L.L.P., Joshua David Bernstein, Eric Donovan Dowell, Pryor Cashman LLP, Isaac Martin Rethy, Thomas C. Rice, David J. Woll, Simpson Thacher & Bartlett LLP, New York, NY, Marc T.G. Dworsky, Richard Christopher St. John, Munger, Tolles & Olson LLP, Los Angeles, CA, David Halleck Fry, Munger, Tolles & Olson LLP, San Francisco, CA, John Francis O'Sullivan, Hogan Lovells US LLP, Miami, Allen Paige Pegg, Murai, Wald, Biondo & Moreno, P.A., Coral Gables, FL, for Defendants.

ORDER & OPINION

LORNA G. SCHOFIELD, District Judge.

Plaintiffs Ritchie Capital Management, LLC, Ritchie Capital Management, Ltd., Ritchie Special Credit Investments, Ltd., Rhone Holdings II, Ltd., Yorkville Investments I, LLC, and Ritchie Capital Structure Arbitrage Trading, Ltd. brought this action in New York state court against Defendants JPMorgan Chase & Co., JPMorgan Chase Bank, N.A. (collectively, “JPMC”), Richter Consulting, Inc. (“Richter”) and sixteen banks and financial institutions (the “Syndicated Lenders”). Plaintiffs assert violations of New York Debtor and Creditor Law, and common law. Defendants removed the action to this Court based on federal question jurisdiction under the Edge Act and because the action is “related to” proceedings in the United States Bankruptcy Court for the District of Minnesota. Plaintiffs now move to remand. For the reasons below, the motion is denied, and the case is transferred to the District of Minnesota.

I. BACKGROUND

A. Factual Background

As required on a motion to remand, all relevant allegations in the Complaint are accepted as true and all factual ambiguities are resolved in favor of Plaintiffs. See, e.g., Kunstenaar v. Hertz Vehicles, LLC, No. 14 Civ. 1101, 2014 WL 1485843, at *1 n. 1 (S.D.N.Y. Apr. 14, 2014). The recitation below is based on the allegations in the Complaint except as otherwise indicated.

The Complaint's primary allegation is that JPMC knew, or consciously avoided learning, that Thomas J. Petters and his company Petters Company, Inc. (“PCI”), were committing fraud and operating a Ponzi scheme. Petters allegedly used JPMC bank accounts to launder money in furtherance of his frauds. As a result of JPMC and the Syndicated Lenders' aiding and abetting Petters' frauds, Plaintiffs suffered a loss of about $189 million.

The timeline, in brief, is as follows. In 2005 JPMC sold its indirect majority ownership of Polaroid Corporation (“Polaroid”) to Petters and earned a large profit. Polaroid thus became a subsidiary of Petters Group Worldwide (“PGW”). To facilitate the sale, JPMC and the Syndicated Lenders loaned Petters a total of $375 million the day after the sale closed (the “Credit Facility”). When Petters and Polaroid were unable to repay these post-acquisition loans, JPMC, also acting as the Syndicated Lenders' agent, did not foreclose on the loans. Instead, JPMC entered into a series of forbearance agreements and extensions, and with Richter's assistance, helped Petters find other sources of funding to repay JPMC and the Syndicated Lenders. Plaintiffs were among those other sources.

Petters—with the help of JPMC and Richter—fraudulently induced Plaintiffs to make a series of loans to Petters and his companies, ultimately totaling approximately $189 million. The proceeds of Plaintiffs' loans were used in part to refinance the Credit Facility loans from JPMC and the Syndicated Lenders, and repay prior lenders to the Ponzi scheme at PCI. Plaintiffs have recovered only a small portion of the money they loaned to Petters.

The following transactions relate to the $189 million that Plaintiffs loaned to Petters and his companies and are particularly relevant to this motion:

• On February 1, 2008, Plaintiffs transferred $31 million to PCI, which was then “transferred numerous times through bank accounts of several shell entities associated with Petters, before being wired to the JPMorgan bank accounts in London, New York, and Chicago” on February 5, 2008, to repay JPMC and the Syndicated Lenders.

• On February 7, 2008, Plaintiffs transferred an additional $16 million to PCI, which was then allegedly transferred “through numerous accounts in the United States and abroad.” Five days later, $12 million of this loan was used to repay a short-term loan made by JPMC to Polaroid on February 7, 2008.

• According to the Summons appended to Plaintiffs' Notice of Removal, Defendant “JP Morgan Chase Bank, N.A. entered into a ‘Blocked Accounts' agreement with J.P. Morgan Europe Limited and Polaroid Consumer Electronics Europe B.V., which established highly suspicious accounts in London that Petters used to illegally launder money.”

B. Bankruptcy Proceedings

Between October 2008 and June 2009 the following Petters entities filed for Chapter 11 protection in the United States Bankruptcy Court for the District of Minnesota: PCI, PGW, Polaroid and Petters Capital LLC. See In re Petters Co., Inc., Case No. 08–45257, 2008 WL 4540479 (Bankr.D.Minn. Oct. 11, 2008) ; In re Petters Group Worldwide, LLC, Case No. 08–45258, 2008 WL 4540480 (Bankr.D.Minn. Oct. 11, 2008) ; In re Polaroid Corp., Case No. 08–46617, 2008 WL 5263025 (Bankr.D.Minn. Dec. 18, 2008) ; In re Petters Capital, LLC, Case No. 09–43847 (Bankr.D.Minn. June 12, 2009). Petters has not filed for bankruptcy.

The Trustees in these bankruptcy cases have filed adversary proceedings against Plaintiffs to set aside certain fraudulent and/or preferential transfers of the Debtors' property to Plaintiffs. These transfers were essentially partial repayments or obligations incurred by the Debtors in connection with the loans described above. On January 6, 2014, the District Court in Minnesota affirmed the Bankruptcy Court's grant of summary judgment in favor of Polaroid's trustee. See Ritchie Capital Mgmt., L.L.C. v. Stoebner, No. Civ. 12–3038, 2014 WL 1386724 (D.Minn. Jan. 6, 2014). That order is being appealed and the remaining adversary proceedings against Plaintiffs remain pending.

The Trustees have also filed adversary proceedings against JPMC seeking disallowance and avoidance of certain transfers of the Debtors' property to JPMC and its affiliates, including “transfers made to JPMC to pay interest and principal on the Credit Facility.” The Bankruptcy Court recently heard oral arguments on JPMC's motions to dismiss these cases on October 21, 2014.

C. Other Proceedings

The present action is one of many that Plaintiffs have brought in courts across the country seeking to recover losses that resulted from Petters' frauds. See, e.g., Ritchie Capital Mgmt., L.L.C. v. Jeffries, 849 F.Supp.2d 881 (D.Minn.2012), appeal voluntarily dismissed (Jan. 4, 2013) (dismissing case against former CEOs of Petters' companies as duplicative of bankruptcy proceedings); Ritchie Capital Mgmt., L.L.C. v. Coleman, No. Civ. 12–270, 2012 WL 1901300 (D.Minn. May 25, 2012) (dismissing case against Petters' former colleagues and law firm as duplicative of bankruptcy proceedings); Ritchie Capital Mgmt., L.L.C. v. Fredrikson & Byron P.A., 980 F.Supp.2d 1010 (N.D.Ill.2013) (remanding case against former law firm because of lack of diversity to Illinois state court, where case was dismissed); Ritchie Capital Mgmt., L.L.C. v. Opportunity Fin., L.L.C., 511 B.R. 603 (D.Minn.2014) (remanding case to Minnesota state court because mandatory abstention applied); Ritchie Capital Mgmt., L.L.C. v. Costco Wholesale Corp., No. 14 Civ. 4819 (S.D.N.Y.) (Broderick, J.) (pending); Ritchie Capital Mgmt., L.L.C. v. BMO Harris Bank, N.A., No. 14 Civ.1936 (S.D.N.Y.) (Ramos, J.) (pending).

II. LEGAL STANDARD

Pursuant to 28 U.S.C. § 1441(a), “[a]n action which was originally filed in state court may be removed by a defendant to federal court only if the case could have been originally filed in federal court.” Hernandez v. Conriv Realty Assocs., 116 F.3d 35, 38 (2d Cir.1997). “A party seeking removal bears the burden of showing that federal jurisdiction is proper.”

Montefiore Med. Ctr. v. Teamsters Local 272, 642 F.3d 321, 327 (2d Cir.2011) (citation omitted). “[O]ut of respect for the limited jurisdiction of the federal courts and the rights of states, [courts] must resolve any doubts against removability.” In re Methyl Tertiary Butyl Ether (“MTBE”) Prods. Liab. Litig., 488 F.3d 112, 124 (2d Cir.2007) (internal quotation marks and alterations omitted).

A district court may transfer a case to “[a] district ... where it might have [originally] been brought” considering “the convenience of parties and witnesses, in the interest of justice.” 28 U.S.C. § 1404(a). “It is well established that a district court can order a transfer sua sponte, provided that [the] court give[s] notice to the parties of its intention to do so in order that the parties may respond.” Angelov v. Wilshire Bancorp, No. 06 Civ. 4223, 2007 WL 2375131, at *3 (S.D.N.Y. Aug. 14, 2007) (collecting cases); see also Cento Pearl v. Arts & Craft Supply Inc., No. 03 Civ. 2424, 2003 WL 1960595, at *1 (S.D.N.Y. Apr. 24, 2003) (collecting cases).

III. DISCUSSION

Plaintiffs argue that this action should be remanded because the Court lacks federal subject matter jurisdiction under the Edge Act and U.S. bankruptcy law; and even if there is “related to” bankruptcy jurisdiction, abstention is warranted. These arguments are rejected.

A. The Edge Act

For an action “[t]o be removable under the Edge Act, 12 U.S.C. § 632, [it] must: (1) be a civil suit, (2) have a federally chartered corporation as a party, and (3) arise ‘out of transactions involving international or foreign banking, [including territorial banking], or out of international or foreign financial operations.’ ” Wilson v. Dantas, 746 F.3d 530,...