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Prudential Insurance Co. of America v. Rbs Financial Products, Inc.

United States District Court, Third Circuit

October 30, 2013

THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, et al., Plaintiffs,
v.
RBS FINANCIAL PRODUCTS, INC., et al., Defendants.

Robin H. Rome, Esq., Kirsten McCaw Grossman, Esq., NUKK-FREEMAN & CERRA, P.C., Short Hills, New Jersey.

Daniel L. Brockett, Esq., David D. Burnett, Esq., QUINN EMANUEL URQUHART & SULLIVAN, LLP, New York, New York.

Jeremy D. Anderson, Esq., David C. Armillei, Esq., Chris Barker, Esq., Los Angeles, California, Attorneys for Plaintiffs.

Paul Rowe, Esq., Alan S. Naar, Esq., GREENBAUM, ROWE, SMITH, & DAVIS LLP, Woodbridge, New Jersey.

Thomas C. Rice, Esq., Alan Turner, Esq., SIMPSON THATCHER & BARTLETT LLP, New York, New York, Attorneys for Defendants.

OPINION

DICKINSON R. DEBEVOISE, District Judge.

This matter arises out of alleged fraud in the sale of residential mortgage-backed securities ("RMBS"). On August 21, 2012, Plaintiffs The Prudential Insurance Company of America ("Prudential"), Park Place Commerce Investments, LLC, Pru Alpha Fixed Income Opportunity Master Fund I, L.P. ("Pru Alpha"), Prudential Trust Company ("Pru Trust"), and the Gibraltar Life Insurance Company, Ltd. filed a Complaint, in the Superior Court of New Jersey, against Defendants RBS Financial Products, Inc. (f/k/a Greenwhich Capital Financial Products, Inc.), RBS Acceptance Inc. (f/k/a Greenwich Capital Acceptance, Inc.), Financial Asset Securities Corp., and RBS Securities, Inc. (f/k/a Greenwich Capital Markets, Inc.) (collectively "RBS"). The Complaint was never served on Defendants.

On or about September 14, 2012, Plaintiffs filed an Amended Complaint that, among other things, added three new plaintiffs: Commerce Street Investments, LLC ("Commerce Street"), Pruco Life Insurance Company ("Pruco"), and Prudential Retirement Insurance and Annuity Company ("PRIAC"). The Amended Complaint also omitted two previous plaintiffs: Park Place Commerce Investments, LLC and the Gibraltar Life Insurance Company, Ltd. In the Amended Complaint, Plaintiffs allege the following four causes of action against Defendants: (i) common law fraud/fraudulent inducement; (ii) aiding and abetting common law fraud/fraudulent inducement; (iii) negligent misrepresentation; and (iv) violation of the New Jersey Civil RICO statute, N.J.S.A. 2C:41-1 et seq.

On November 2, 2012, Defendants removed this action to this Court, pursuant to 28 U.S.C. §§ 1334(a), 1452(a), 1441(b), and 1332. Plaintiffs now move to remand this action to New Jersey Superior Court. For the reasons set forth below, Plaintiff's motion is GRANTED.

I. BACKGROUND

From 2004 to 2007, Plaintiffs purchased more than $477 million in RMBS, across twenty-three separate securitizations ("the Certificates"), from Defendants. In the Amended Complaint, Plaintiffs allege that the written materials prepared by Defendants to solicit Plaintiffs' RMBS purchases contained numerous material representations and omissions regarding the underwriting guidelines that were followed by the underlying mortgage loan originators, and the risk profile and credit quality of those loans. Plaintiffs further allege that Defendants' failure to follow their underwriting guidelines resulted in a markedly increased default rate on the mortgage loans and a marked decrease in the value of the Certificates.

The Amended Complaint identifies nine originators of the loans backing the Certificates. Three of those originators-Fremont, First NLC, and Meritage-are currently involved in bankruptcy proceedings (the "Bankrupt Originators"). The Bankrupt Originators originated or acquired 100% of the loans in twelve of the twenty-three securitizations. In connection with these securitizations, the Bankrupt Originators agreed to indemnify Defendants for any losses relating to misstatements of material fact regarding the quality or nature of the loans, including expenses associated with investigating or defending against losses or claims arising from such misstatements.

II. DISCUSSION

Plaintiffs now move to remand this action to New Jersey Superior Court, pursuant to 28 U.S.C. § 1447. In doing so, they argue that (1) their state court action is not "related to" any bankruptcy proceeding; (2) the Court is required under 28 U.S.C. § 1334(c)(2) to abstain from exercising any "related to" jurisdiction; (3) the Court should remand this case under the permissive abstention provisions of 28 U.S.C. §§ 1334(c)(1) and 1452(b); and (4) all named Plaintiffs are proper parties, and there is no basis for diversity jurisdiction.

Defendants oppose the motion, arguing that (1) this lawsuit will have a conceivable effect on multiple bankruptcy proceedings; (2) mandatory abstention is not appropriate in this action; (3) there is no basis for equitable remand; and (4) there is complete diversity among properly joined parties.

A. Standard of Review

"Only state-court actions that originally could have been filed in federal court may be removed to federal court by the defendant." Caterpillar Inc. v. Williams , 482 U.S. 386, 392 (1987). "Absent diversity of citizenship, federal-question jurisdiction is required." Id . "The presence or absence of federal-question jurisdiction is governed by the well-pleaded complaint rule, ' which provides that federal jurisdiction exists only when a federal question is presented on the face of the plaintiff's properly pleaded complaint." Id ...


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