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In the Matter of the Trusteeship Created By Lnr Iv

April 3, 2013

IN THE MATTER OF THE TRUSTEESHIP CREATED BY LNR IV, LTD, AND LNR CDO IV, CORPORATION, RELATING TO THE ISSUANCE OF NOTES IN THE ORIGINAL AGGREGATE PRINCIPAL AMOUNT OF $1,279,038,000


The opinion of the court was delivered by: Michael J. Davis Chief Judge United States District Court

MEMORANDUM OF LAW & ORDER

I.INTRODUCTION

This matter is before the Court on Party In Interest Morgan Stanley & Co., LLC's Motion To Transfer Venue to the Southern District of New York. [Docket No. 10] This matter is also before the Court on LNR CDO IV, LLC (f/k/a LNR CDO IV Corporation), LNR Partners, LLC (f/k/a LNR Partners, Inc.), LNR Securities Holdings, LLC, LNR Securities Preferred, LLC, and Diesel Ltd.'s Motion to Remand. [Docket No. 31] The Court heard oral argument on January 18, 2013. For the reasons that follow, the Court denies the motion to remand, grants the motion to transfer venue, and transfers this case to the United States District Court for the Southern District of New York.

II.BACKGROUND

A.Factual Background

1.The Parties

Petitioner U.S. Bank National Association ("U.S. Bank") is a national banking association organized under the laws of the United States. (Luger Decl., Ex. E.) U.S. Bank's corporate trust headquarters are located in St. Paul, Minnesota. (Id.) U.S. Bank is the successor Trustee for the trusts at issue. (Id.)

Party In Interest Morgan Stanley & Co., LLC ("Morgan Stanley") is a corporation incorporated in Delaware and has its principal place of business in New York, New York. (Id., Exs. F and G.)

2.The March 2, 2006 Indenture

In February 2006, LNR CDO IV Ltd., as Issuer, and LNR CDO IV Corporation, as Co-Issuer (collectively "LNR Co-Issuers") offered for sale classes of notes that were secured primarily by a pool of commercial mortgage-backed securities. (Luger Decl., Ex. A.) The Issuer, LNR CDO IV Ltd., is an exempt limited liability company incorporated under the laws of the Cayman Islands. (Id., Ex. A.) The Co-Issuer, LNR CDO IV Corporation, is a Delaware corporation and has no prior operating history. (Id.)

The notes were issued pursuant to the March 2, 2006 Indenture. (Luger Decl., Ex. B.) The parties to the Indenture were the LNR Co-Issuers and the Trustee, LaSalle National Bank Association. (Id.) At some time after the offering, U.S. Bank succeeded LaSalle as the Trustee. (Id., Ex. E.)

The Co-Issuers issued non-recourse notes in the original aggregate principal amount of $1,279,038,000. (Id., Ex. B.) The notes were issued in several classes that had different terms and different rates of interest and priorities of repayment. (Id., Ex. B and E.) Morgan Stanley holds Class A Notes.

3.Indenture Language At Issue

The Indenture provides for two separate priorities of payments for the payment of principal and interest for each class of Notes. (Id., Exs. B and E.) The priority of payments depends on whether the indebtedness evidenced by the Notes has been accelerated. (Id., Exs. B and E.) If indebtedness has not been accelerated, the payment of all principal and interest is due on higher-priority notes before any principal is paid on lower-priority notes (the "Non-Accelerated Priority of Payments"). (Id., Ex. B.) If indebtedness has been accelerated, no further payments of either principal or interest shall be paid to junior classes until all principal and interest owed to Class A notes have been paid in full (the "Accelerated Priority of Payments"). (Id.)

It is undisputed that a default event occurred under the Indenture. (Id., Exs. C and E.) In response, Morgan Stanley issued a Declaration of Acceleration of the indebtedness pursuant to the Indenture. (Id., Ex. E.)

The Trustee, U.S. Bank, determined that the Indenture required it to rescind the Declaration of Acceleration. (Id.) The Trustee also determined that rescission made the Non-Accelerated Priority of Payments applicable, instead of the Accelerated Priority of Payments. (Id.) This permits the Trustee to make interest payments to Holders of subordinated notes before Holders of Class A notes, like Morgan Stanley, have been paid in full.

Several LNR entities submitted a response to U.S. Bank rejecting Morgan Stanely's position and reiterating the requirements to rescind and annul the acceleration. (Siddiqui Decl. ¶ 16 and Ex. E.)

B.Procedural Background

On or about October 9, 2012, Petitioner U.S. Bank filed a Petition for Instruction in the Administration of Trust Pursuant to Minn. Stat. § 510B.16 in the State of Minnesota, Second Judicial District, District Court, Court of Ramsey County. The Trustee sought instruction from the Minnesota State Court approving its interpretation of the Indenture. (Luger Decl., Ex. E.) The Trustee sought an Order:

(i) approving and ratifying the Trustee's determination that the Trustee is obligated to rescind the Declaration of Acceleration and all of its consequences; (ii) approving and ratifying the Trustee's determination that the subordination provisions [ ] do not currently apply to prohibit a distribution by the Trustee in accordance with the Non-Accelerated Priority of Payment [ ]; and (iii) approving payment from the Trust of any fees and expenses incurred by the Trustee in connection with this Petition, notwithstanding any limitations on such payment set forth in this Indenture. (Id.)

The Petition was filed pursuant to the Minnesota State Statutory Trust Instruction Proceedings ("TIPs"). Id.; see also Minn. Stat. § 510B.16-.25. On October 10, 2012, the Minnesota State Court ordered a December 17, 2012 hearing on the Petition and provided that parties in interest may object to the Petition by filing a memorandum of law five days before the hearing. (Luger Decl., Ex. E.)

On November 1, 2012, Party In Interest Morgan Stanley removed the case to this Court based on diversity jurisdiction and federal question jurisdiction under the Edge Act, 12 U.S.C. § 632. On November 12, 2012, Morgan Stanley filed a motion to transfer venue to the Southern District of New York. [Docket No. 10] On November 21, 2012, the LNR Parties filed a Motion to Remand the action to the Minnesota state court. [Docket No. 31]

III. DISCUSSION

A.Motion to ...


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