United States District Court, D. Minnesota
MEMORANDUM AND ORDER
A. Magnuson United States District Court Judge
matter is before the Court on Motions to Dismiss filed in
these so-called “second wave” of the consolidated
In re RFC and ResCap Liquidating Trust Litigation,
D. Minn. No. 13cv3451, cases. For the following reasons, the
“omnibus” Motion is denied, BMO Harris Bank's
case-specific Motion is denied, and U.S. Bank's
case-specific Motion is granted and the Complaint against
U.S. Bank is dismissed without prejudice.
full factual background of this matter has been detailed in
many previous Orders and will not be repeated here. Briefly,
Plaintiff ResCap Liquidating Trust, successor to Residential
Funding Company (collectively referred to as
“RFC”), alleges that the mortgages the various
bank Defendants sold to RFC, and which RFC aggregated into
mortgage-backed securities, were defective and did not comply
with the underwriting and originating standards in the
parties' agreements. RFC claims breach of contract and
indemnification against the banks.
Omnibus Motion 
banks' omnibus Motion contends that the Court lacks
jurisdiction over these cases. Jurisdiction in all RFC
actions now pending in federal court is premised on the
Bankruptcy Code. Defendants argue that these cases must be
dismissed because they are insufficiently related to
RFC's bankruptcy to confer subject-matter jurisdiction.
over BMO is also premised on diversity jurisdiction. BMO
argues that RFC has failed to allege its citizenship, and
that RFC's citizenship must include all of the
Trust's “unitholders”, which number in the
thousands if not tens of thousands. According to BMO, it is
likely impossible for every Trust unitholder to be diverse
from BMO, so diversity jurisdiction is lacking. If there is
no bankruptcy jurisdiction, BMO contends, there is no basis
for federal jurisdiction. The Court will first address
bankruptcy jurisdiction, setting aside the question whether
there is diversity jurisdiction over BMO.
Court has jurisdiction over matters “arising in or
related to cases under” the Bankruptcy Code. 28 U.S.C.
§ 1334(b). There is no dispute that this matter did not
“aris[e] in” RFC's bankruptcy proceedings.
Thus, the only basis for federal jurisdiction over many of
the RFC cases pending in this District is “related
to” bankruptcy jurisdiction. To determine whether these
cases are “related to” RFC's bankruptcy case
requires a brief review of RFC's bankruptcy and the
creation of the Trust.
Bankruptcy Court for the Southern District of New York
confirmed RFC's Chapter 11 plan in December 2013. In
re Res. Capital, LLC, Case No. 12-12020 (Bankr. S.D.N.Y.
Dec. 11, 2013). As part of that confirmation, the court
created Plaintiff ResCap Liquidating Trust. RFC transferred
all of its assets to the Trust, including the claims that the
Trust asserts in these lawsuits. Indeed, one of the main
purposes for the Trust's creation was the pursuit of the
claims in these lawsuits. The Trust assigned
“units” of the Trust in proportional shares to
RFC's various creditors, whom the parties now call
“unit-holders.” The Trust's units are
negotiable and have been bought and sold on the market.
civil litigation that claims “related to”
bankruptcy jurisdiction under § 1334(b), courts evaluate
federal jurisdiction by determining whether the litigation
has a “conceivable effect” on the bankruptcy
estate. In re RFC & ResCap Liquidating Trust
Litig., No. 13-3451, 2015 WL 2373401, at * 5 (D. Minn.
May 18, 2015) (Nelson, J.). The “conceivable
effect” test is undeniably broad, and Defendants do not
dispute that, under that test, these cases are “related
to” RFC's bankruptcy for purposes of conferring
Eighth Circuit test
argue that, because these lawsuits arose after confirmation
of RFC's bankruptcy plan, the Court must use a narrower
test to evaluate whether they are “related to”
the bankruptcy. According to Defendants, the Court must
determine whether the matter is related to the administration
and interpretation of the bankruptcy plan, not merely whether
it has a conceivable effect on the plan. (Defs.' Supp.
Mem. (Docket No. 50 in 17cv194) at 12 (quoting In re
Fairfield Cmties., Inc., 142 F.3d 1093, 1095 (8th Cir.
1998)).) The reason for this distinction, Defendants argue,
is that this litigation arises long after the confirmation of
RFC's bankruptcy plan, while cases using the
“conceivable effect” test involved litigation
that arose before the plan's confirmation.
draw their narrow test from the Eighth Circuit's
Fairfield Communities decision. That case involved
claims against a bankrupt debtor that arose from the
debtor's post-confirmation conduct. Id. at 1095.
The Eighth Circuit stated the general principle that a
bankruptcy court could retain post-confirmation jurisdiction
“over aspects of a plan related to its administration
and interpretation” by explicitly providing for such
continuing jurisdiction in the confirmation order.
Id. (quoting Norwest Equip. Fin., Inc. v.
Nath, 91 F.3d 1072, 1074 (8th Cir. 1996)). In the
Fairfield Communities case, the bankruptcy court
retained jurisdiction “over cases involving the
enforcement of the plan.” Id. As the Eighth
Circuit put it, the resolution of that question required
determining when the claims arose: “this case could
involve [enforcement of] the plan only if the
[creditors'] claims arose before the plan's
confirmation.” Id. at 1095. Because the
creditors' claims solely involved the debtor's
post-confirmation conduct, the Eighth Circuit held that those
claims did not involve enforcement of the plan and that there
was therefore no bankruptcy jurisdiction over them.
Id. at 1096.
Communities presented a far different situation than is
presented in the RFC cases. The Bankruptcy Court in RFC's
bankruptcy proceedings retained “exclusive jurisdiction
over all matters arising out of, or related to, the Chapter
11 Cases and the Plan . . . including jurisdiction . . . to
hear and determine any Causes of Action preserved under the
Plan.” (Markowitz Decl. Ex. 1 (Docket No. 51-1 in
17cv194) Art. XII (pp. 110-12).) RFC's bankruptcy plan
specifically contemplates post-confirmation litigation and
preserved jurisdiction over that litigation. See In re
RFC & ResCap, 2015 WL 2373401, at *5 (“The
Plan expressly preserved RFC's claims [against the ...