Wachtell, Lipton, Rosen, & Katz v. CVR Energy, Inc.

• Decision Date: 18 March 2014
• Docket Number: 14 Civ. 80 (PAE)
• Court: U.S. District Court — Southern District of New York
• Parties: WACHTELL, LIPTON, ROSEN, & KATZ, Plaintiff, v. CVR ENERGY, INC., ICAHN ENTERPRISES, L.P., ICAHN ENTERPRISES HOLDINGS L.P., and CARL ICAHN, Defendants.

WACHTELL, LIPTON, ROSEN, & KATZ, Plaintiff, v. CVR ENERGY, INC., ICAHN ENTERPRISES, L.P.,ICAHN ENTERPRISES HOLDINGS L.P., and CARL ICAHN, Defendants.

14 Civ. 80 (PAE)

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK

Dated: March 18, 2014

OPINION & ORDER

PAUL A. ENGELMAYER, District Judge:

In a lawsuit filed in the Supreme Court of the State of New York, Plaintiff Wachtell, Lipton, Rosen, & Katz ("Wachtell") brought state-law claims for, inter alia, breach of contract and abuse of process against Defendants CVR Energy, Inc. ("CVR"), Icahn Enterprises, L.P., Icahn Enterprises Holdings L.P., and Carl Icahn (collectively, "Defendants"). Defendants then removed the action to this Court, claiming that Wachtell had fraudulently joined the latter three defendants¹ to the lawsuit in order to defeat diversity jurisdiction.

Before the Court now is Wachtell's motion to remand the action to New York State Supreme Court for lack of federal subject matter jurisdiction. For the reasons that follow, Wachtell's motion is granted.

I. Background²

CVR is an energy company incorporated in Delaware, with its principal place of business in Texas or Kansas. Compl. ¶¶ 1, 11. This case arises out of the 2012 takeover of CVR by Carl Icahn, a New York-based investor. Id. ¶¶ 1, 12. In January 2012, Icahn purchased a large position in CVR and announced his intent to take a controlling stake in the company. Id. ¶¶ 1, 15. CVR retained Wachtell, as well as two investment banks (Goldman, Sachs & Co. ("Goldman Sachs") and Deutsche Bank Securities, Inc. ("Deutsche Bank")), to provide legal and financial advice during the takeover process. Id. ¶¶ 1, 16, 18. CVR entered into engagement letters with all three entities. Id. ¶¶ 20-28. In April 2012, the parties entered an agreement allowing Icahn to take control of CVR. Id. ¶¶ 31, 33.

After Icahn took control, he instructed CVR not to pay the banks or Wachtell for their services. Id. ¶¶ 33, 34. (By this point, Wachtell had already been paid, but Icahn continued to instruct CVR not to pay the banks. Id. ¶¶ 33, 34.) In June 2012, Goldman Sachs filed suit inNew York State court to recover fees allegedly owed it by CVR, see Goldman, Sachs & Co. v. CVR Energy, Inc., Index No. 652149/2012 (N.Y. Sup. Ct.) (filed June 21, 2012); in August 2012, Deutsche Bank did the same, see Deutsche Bank Securities Inc. v. CVR Energy, Inc., Index No. 652800/2012 (N.Y. Sup. Ct.) (filed August 10, 2012). These actions were consolidated into a single case (the "Bank Action"). Compl. ¶ 34.

On September 24, 2012, the court in the Bank Action entered a stipulation and order agreed to by the parties regarding the production of confidential and privileged information (the "Protective Order"). Id. ¶ 35. The Protective Order by its terms "limit[s] the review, copying, dissemination and filing of . . . information to be produced by either party and their respective counsel or by any non-party in the course of discovery in [the Bank Action] to the extent set forth [in the Order]." Beigel Decl. Ex. 2. The Protective Order applies to "the production, exchange and discovery of documents and information that the parties agree merit confidential treatment," and allows any party to designate information as "confidential." Id. ¶¶ 1, 2. Specifically, the Protective Order provides that "Confidential Information," i.e., documents, testimony, the information contained therein, and other information designated as confidential, "shall be utilized by the Receiving party and its counsel only for purposes of this litigation and for no other purposes." Id. ¶¶ 3(a), 6. The Protective Order further defines "Receiving party" as "the party to this action and/or any non-party receiving 'Confidential Information' in connection with depositions, document production or otherwise." Id. ¶ 3(c).

In December 2012, in response to a subpoena in the Bank Action, Wachtell produced certain documents regarding the fee arrangement it had negotiated with the banks on CVR's behalf pursuant to the Protective Order, and marked those items as "Confidential." Compl. ¶ 36.

In September 2013, Keith Schaitkin, an attorney for Icahn, contacted representatives for Wachtell. He threatened that CVR intended to bring a malpractice suit against Wachtell for, allegedly, failing to properly advise CVR's board about the banks' fees. Id. ¶ 37. Schaitkin then sent Wachtell a draft complaint, which incorporated documents that Wachtell had produced in the Bank Action pursuant to the Protective Order and had designated as "Confidential." Id. Wachtell refused to pay money, or enter into an anticipatory settlement, to foreclose the possibility of suit. Id. ¶ 38.

On October 24, 2013, CVR, controlled by Icahn, filed a malpractice action against Wachtell in U.S. District Court for the District of Kansas. See CVR Energy, Inc. v. Wachtell Lipton Rosen & Katz, No. 13 Civ. 2547 (JAR) (TJJ) (D. Kan.) (filed Oct. 24, 2013) (the "Kansas Action"). CVR alleged that Wachtell, prior to Icahn's assumption of control, had failed to inform CVR about fees it would owe the banks under the terms of their engagement letters. See Compl. ¶¶ 38-43. The complaint in the Kansas Action also referenced documents produced by Wachtell in the Bank Action that had been designated as "Confidential." Id. ¶ 43.

On December 18, 2013, Wachtell filed the present action in New York State court. See Wachtell Lipton Rosen & Katz v. CVR Energy, Inc., et al., Index No. 654343/2013 (N.Y. Sup. Ct.) (filed Dec. 18, 2013). Wachtell's Complaint alleges that Defendants had improperly "caused" CVR to file the Kansas Action. Wachtell brings claims under state law against all Defendants for (1) breach of the Protective Order issued in the Bank Action (Count Two); and (2) abuse of process in connection with the filing of the Kansas Action (Count Three). In addition, in a third cause of action brought only against CVR, Wachtell seeks a declaratory judgment that it is not liable to CVR for malpractice (Count One). See Compl.

On January 7, 2014, Defendants removed the case to this Court on the basis of diversity jurisdiction.³ Notice of Removal ¶ 10. On February 3, 2014, Wachtell filed a motion to remand to state court, Dkt. 13, and a supporting memorandum of law, Dkt. 14 ("Pl. Br."). On February 12, 2014, Defendants filed a memorandum of law in opposition to Wachtell's motion to remand. Dkt. 19 ("Def. Br."). On February 19, 2014, Wachtell replied. Dkt. 24. On February 24, 2014, the Court heard argument.

II. Legal Standards

"[A]ny civil action brought in a State court of which the district courts of the United States have original jurisdiction, may be removed by the defendant or the defendants, to the district court of the United States for the district and division embracing the place where such action is pending." 28 U.S.C. § 1441(a). District courts have original jurisdiction over cases "between . . . citizens of different states," where the amount in controversy exceeds $75,000. Id. § 1332(a). Diversity jurisdiction under § 1332(a) "requires complete diversity between all plaintiffs and defendants." Pampillonia v. RJR Nabisco Inc., 138 F.3d 459, 460 (2d Cir. 1998).

On a motion to remand, "the defendant bears the burden of demonstrating the propriety of removal." Cal. Pub. Employees' Ret. Sys. v. Worldcom, Inc., 368 F.3d 86, 100 (2d Cir. 2004) (internal quotation marks and citation omitted).

III. Discussion

Wachtell is a citizen of New York.⁴ The Icahn Defendants are also citizens of New York.⁵ There is no doubt that if the Icahn Defendants are properly joined to this case, they destroy diversity of citizenship and thus Defendants' ability to remove. See Pampillonia, 138 F.3d at 460 (presence of New York citizens on both sides of a case "destroys diversity citizenship, and thereby deprives the district court of subject matter jurisdiction under 28 U.S.C. § 1332 (which requires complete diversity between all plaintiffs and defendants) and defeats the defendants' petition for removal"). Defendants argue, however, that Wachtell's state-court Complaint fraudulently joined the Icahn Defendants, for the improper purpose of depriving this Court of subject matter jurisdiction.

It is well established that "a plaintiff may not defeat a federal court's diversity jurisdiction and a defendant's right of removal by merely joining as defendants parties with no real connection with the controversy." Id. at 460-61. "In order to show that naming a non-diverse defendant is a 'fraudulent joinder' effected to defeat diversity, the defendant must demonstrate, by clear and convincing evidence, either that there has been outright fraud committed in the plaintiff's pleadings, or that there is no possibility, based on the pleadings, that a plaintiff can state a cause of action against the non-diverse defendant in state court." Id. at 461.

Significant here, the burden of proving fraudulent joinder is "heavy." Id. "Joinder is considered fraudulent where there can be no recovery under the law of the state on the cause alleged. . . . Any possibility of recovery, even if slim, militates against a finding of fraudulent joinder[.]" Nemazee v. Premier, Inc., 232 F. Supp. 2d 172, 178 (S.D.N.Y. 2002) (internal quotation marks omitted) (emphasis added); see also Stan Winston Creatures, Inc. v. Toys "R" Us, Inc., 314 F. Supp. 2d 177, 183 (S.D.N.Y. 2003) (finding of fraudulent joinder appropriate only where it is "legally impossible" for plaintiff to state a claim under state law); accord Dexter v. A C & S Inc., No. 02 Civ. 6522 (RCC), 2003 WL 22725461, at *2 (S.D.N.Y. Nov. 18, 2003). In assessing whether a defendant has been fraudulently joined, "all factual and legal issues must be resolved in favor of the plaintiff." Pampillonia, 138 F.3d at 461.

Defendants do not argue that Wachtell's pleadings are fraudulent. The motion for remand, therefore, turns on whether Defendants can demonstrate, by clear and convincing evidence, that recovery on Counts Two or Three is legally...