United States District Court, D. Minnesota
Benjamin I. Finestone and David Elsberg, Quinn Emanuel Urquhart & Sullivan LLP; and Timothy D. Kelly, Dykema Gossett, PLLC, for Plaintiff.
Alicia C. Davis, and Sean M. Berkowitz, Latham & Watkins LLP, Chicago, IL 60611; Christopher W. Madel and Damien A. Riehl, Robins, Kaplan, Miller & Ciresi LLP, Robert Malionek, Roger G. Schwartz, Latham & Watkins LLP, for Defendant.
MEMORANDUM OPINION AND ORDER
SUSAN RICHARD NELSON, District Judge.
This matter is before the Court on the following motions: (1) Plaintiff's Motion to Remand [Doc. No. 24]; and (2) Defendant's Motion to Transfer Venue [Doc. No. 3]. Because the Court must consider jurisdictional issues first, see Transamerica Fin. Life Ins. v. Merrill Lynch & Co., 302 B.R. 620, 624 (N.D. Iowa 2003), the Court begins by addressing Plaintiff's Motion to Remand. See also AUSA Life Ins. Co. v. Citigroup, Inc., 293 B.R. 471, 474 (N.D. Iowa 2003) (holding that "in accord with the majority view that jurisdictional issues should be considered first, [the court] will consider plaintiffs' motion for remand before considering defendants' transfer motion."). For the reasons set forth below, the Court grants Plaintiff's Motion to Remand, and denies Defendants' Motion to Transfer, as moot.
A. Petters' Ponzi Scheme
This case arises from financial losses associated with dealings with Thomas J. Petters ("Petters"). Petters "and his affiliates engaged in a 13-year Ponzi scheme premised on the fictitious purchase and sale of electronics merchandise." (See Pl.'s Mem. at 4 [Doc. No. 26] (citing Notice of Removal, Ex. A, "Compl." ¶ 2 [Doc. No. 1-1]).) Petters solicited capital in exchange for attractive interest rates, purportedly enabling him and his entities to purchase electronics merchandise at liquidation prices. (Id. (citing Compl. ¶ 17 [Doc. No. 1-1]).) Among others, Petters' entities included: Petters Company, Inc. ("PCI"); PAC Funding, LLC ("PAC"); Petters Group Worldwide ("PGW"); Petters Capital, Inc. ("Petters Capital"); and RedtagBiz, Inc., f/k/a Tom's Cyber Warehouse, Inc., f/k/a redtagoutlet.com, inc. ("Red Tag"). (See Compl. ¶ 19 [Doc. No. 1-1].) Petters' business operated as a Ponzi scheme, as earlier lenders were repaid with funds lent by later victims. (Id. ¶¶ 16, 18.) As a result of Petters' scheme, investor losses totaled to approximately three to four billion dollars. (Id. ¶ 18.)
On October 11, 2009, PCI and its affiliated debtors filed for title 11 bankruptcy protection in the United States Bankruptcy Court for the District of Minnesota, Case No. 08-cv-45257 [hereinafter, "Petters Bankruptcy"]. (Id. ¶ 19.) Palm Beach Finance Partners, L.P. and Palm Beach Finance II, L.P. (collectively, "Palm Beach Debtors") were among the largest investors in Petters' Ponzi scheme. They also commenced title 11 bankruptcy proceedings in late 2009, but did so in United States Bankruptcy Court for the Southern District of Florida [hereinafter, "Palm Beach Bankruptcy"]. (See Notice of Removal, Ex. B "Order Granting in-part and Denying in-part GECC's Motion to Dismiss" at 6 [Doc. No. 1-1].) In 2010, the Florida Bankruptcy Court confirmed a chapter 11 plan, pursuant title 11 of the Bankruptcy Code, and established a liquidation trust for the Palm Beach Bankruptcy. See In re Palm Beach Fin. Partners, L.P., Case No. 09-36379 (BKC/PGH), "Order Confirming Second Amended Joint Plan Of Liquidation" (Bankr. S.D. Fla. Oct. 21, 2010). Paragraph 34 of the Florida Bankruptcy Court's order states that additional proceedings may be instituted "in the Court to remedy any defect or omission or reconcile any inconsistencies in the Plan... so long as such proceedings do not materially and adversely affect the treatment of holders of Claims under the Plan." See In re Palm Beach Fin. Partners, L.P., Case No. 09-36379 (BKC/PGH), "Order Confirming Second Amended Joint Plan Of Liquidation" ¶ 34 (Bankr. S.D. Fla. Oct. 21, 2010).
On September 29, 2012, Barry Mukamal ("Mukamal" or "the Trustee"), in his capacity as liquidating trustee of the Palm Beach Debtors, filed an adversary proceeding against General Electric Capital Corporation ("GECC"), alleging that GECC was liable for fraud, negligent misrepresentation, aiding and abetting fraud, and conspiracy to commit fraud [hereinafter, "Palm Beach Litigation"]. See In re Palm Beach Fin. Partners, L.P., Case No. 12-01979-PGH (Bankr. S.D. Fla. Sept. 29, 2012). GECC filed a motion to dismiss all of the Trustee's claims. On August 23, 2013, the Florida Bankruptcy Court granted GECC's motion on all counts, except for the Trustee's conspiracy to commit fraud claim. (See Notice of Removal, Ex. B "Order Granting inpart and Denying in-part GECC's Motion to Dismiss" [Doc. No. 1-1].) The discovery deadline passed on December 18, 2014, and Judge Paul G. Hyman, Jr., has scheduled a pretrial conference to take place between the parties on March 3, 2015. (See id., Ex. C "Order filed on March 28, 2014" at 2 [Doc. No. 1-1].)
B. The Parties
Plaintiff Greenpond South, LLC ("Plaintiff" or "Greenpond") is a limited liability corporation organized under the laws of the State of Delaware. (See Compl. ¶ 11 [Doc. No. 1-1].) Greenpond is a successor-in-interest to several funds, including Acorn Capital Group, LLC ("Acorn"). (See Pl.'s Mem. at 6 n.2 [Doc. No. 26].) Plaintiff's successorin-interest status for the funds applies to all the funds' claims, which are related to Petters-related losses, including Acorn's bankruptcy claim in the Petters Bankruptcy. (Id.)
Defendant GECC ("Defendant" or "GECC") is a corporation also organized under the laws of the state of Delaware. (See Compl. ¶ 12 [Doc. No. 1-1].) GECC's principal place of business is 901 Main Avenue, Norwalk, Connecticut 06851. (Id.)
C. GECC's Alleged Role in Petters' Ponzi Scheme
Plaintiff alleges that GECC provided Petters' affiliates with one of their first significant sources of funds. (Id. ¶ 3.) Plaintiff claims that although GECC "knew that the loan proposals it had been receiving from Petters were fraudulent, " (id. ¶ 37), GECC assisted Petters in furtherance of his scheme by permitting Petters to defraud "others whose money would be used to repay GECC, " (id. ¶ 38). Greenpond claims that Petters took "affirmative steps to further Petters' fraud, including submitting a false confirmation letter to Petters' auditors, in exchange for being paid in full on account of its credit facilities from what GECC must have known were the proceeds of further fraud enacted by Petters." (See Pl.'s Mem. at 5-6 [Doc. No. 26].)
Once GECC was paid in full by Petters, Acorn loaned Petters and his affiliates $75 million, which was later increased to $300 million, "after relying upon, among other things, GECC's actions in furtherance of Petters' fraud." (See id.) Acorn, and its affiliates and investors, suffered losses in excess of $141 million, as a result of their dealings with Petters. (See Compl. ¶ 80 [Doc. No. 1-1].) As noted above, Greenpond is Acorn's successor-in-interest. Thus, Plaintiff's claims against GECC are based on the alleged financial loss that Acorn incurred.
D. Procedural Posture
Greenpond filed suit against GECC in the Fourth Judicial District Court, County of Hennepin, State of Minnesota on April 10, 2014. (See Compl. at 27 [Doc. No. 1-1].) Greenpond claims that GECC is liable for aiding and abetting fraud and conspiring to commit fraud with Petters. (See generally id.) On April 21, 2014, Defendant removed the case to federal court pursuant to 28 U.S.C. §§ 1334, 1446, and 1452. (See Notice of Removal ¶¶ 1-2 [Doc. No. 1].)
GECC contends that the state court action [hereinafter, "State Action"] is "related to" the bankruptcy proceedings currently pending in Minnesota and Florida. First, GECC argues that this case is "related to" the Petters Bankruptcy because "a recovery in [this State Action] by Greenpond... against GECC would reduce Greenpond's... claim in the Petters' Bankruptcy-thereby increasing the creditors' recoveries in those proceedings." (Id. ¶ 9.) Additionally, GECC argues that this case is "related to" the Palm Beach Bankruptcy because "an increased recovery to creditors in the Petters Bankruptcy also would result in increased recoveries to creditors in the Palm Beach Bankruptcy." (Id.)
The same day that GECC filed its Notice of Removal, it also filed a motion seeking to have the State Action transferred to the United States District Court for the Southern District of Florida, so that the district court could refer the case to the Bankruptcy Court in the Southern District of Florida. (See Def.'s Mot. to Transfer Venue at 1 [Doc. No. 3].) Defendant also filed a supporting memorandum [Doc. No. 5] and several exhibits [Docs. No. 6-1-6-6]. Plaintiff filed a response on May 22, 2014 [Doc. No. 29]. On May 29, 2014, Defendant submitted a reply brief [Doc. No. 31], with two supporting exhibits [Doc. No. 31-1].
Plaintiff filed a Motion to Remand for lack of jurisdiction, or, in the alternative, for the Court to abstain pursuant to 28 U.S.C. §§ 1334(c)(1), (2), or equitably remand pursuant to 28 U.S.C. § 1452(b) [Doc. No. 24]. Greenpond also submitted a memorandum [Doc. No. 26], a declaration [Doc. No. 27], and several exhibits [Doc. No. 27-1-27-8]. Defendant filed a response brief on June 6, 2014 [Doc. No. 34], and Plaintiff submitted a reply on June 13, 2014 [Doc. No. 35].
E. Plaintiff's Theories for Remand
Plaintiff contends that remand is justified in this case for at least three reasons. First, Greenpond claims that its State Action is not "related to" the bankruptcy proceedings underway, and thus, this Court lacks jurisdiction. (See Pl.'s Mem. at 11 [Doc. No. 26].) Under 28 U.S.C. § 1452(a), "[a] party may remove any claim or cause of action in a civil case[, ]... to the district court for the district where such civil action is pending, if such district court had jurisdiction of such claim or cause of action under section 1334 of this title." Section 1334, in turn, provides for several forms of federal bankruptcy jurisdiction, including cases that "relate to" a bankruptcy. See 28 U.S.C. § 1334(b) (stating that district courts have original, but not exclusive jurisdiction of all civil proceedings "related to" cases under title 11). Plaintiff argues that the State Action is not "related to" the bankruptcy proceedings, but is merely a ...