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In re RFC and ResCap Liquidating Trust Litigation

United States District Court, D. Minnesota

July 21, 2017

In Re RFC and ResCap Liquidating Trust Litigation
PNC Bank, N.A., as successor to Community Bank of Northern Virginia, Case No. 17-cv-0196 This document relates to ResCap Liquidating Trust ResCap Liquidating Trust
Origin Bank, f/k/a Community Trust Financial Corporation, as successor to Cimarron Mortgage Company, Case No. 17-cv-0203


          SUSAN RICHARD NELSON, United States District Judge


         This matter is before the Court on PNC Bank, N.A.'s Motion to Dismiss [Doc. No. 2344] and Origin Bank's Notice of Joinder in Motion to Dismiss for Lack of Subject Matter Jurisdiction [Doc. No. 2350]. For the reasons set forth below, the Court denies PNC's motion to dismiss, grants Origin's motion for joinder, and denies Origin's motion to dismiss.


         The general facts pertaining to this consolidated action are set forth in previous rulings by this Court and are incorporated herein by reference. See, e.g., ResCap Liquidating Trust v. CMG Mortg., Inc., Case No. 13-cv-3451, 2015 WL 2373401, at *1-2 (D. Minn. May 18, 2015); Residential Funding Co. v. Acad. Mortg. Corp., 59 F.Supp.3d 935, 938-41 (D. Minn. 2014); Residential Funding Co. v. Terrace Mortg. Co., 850 F.Supp.2d 961, 962-64 (D. Minn. 2012).

         Stated briefly, prior to May 2012, Residential Funding Corporation (“RFC”) “was in the business of acquiring and securitizing residential mortgage loans.” (See Compl. ¶ 5 [Case No. 17-cv-0196, Doc. No. 1] (“PNC Compl.”).) RFC acquired the loans from “correspondent lenders” and distributed the loans by either pooling them with other loans to sell into residential mortgage-backed securitization (“RMBS”) trusts or selling them to other purchasers. (Id.) To ensure loan quality, RFC required the correspondent lenders to abide by certain representations and warranties regarding the loans. (Id. ¶ 7.) According to Plaintiff ResCap Liquidating Trust (“Trust”), the correspondent lenders were responsible for collecting information from borrowers, verifying the accuracy of that information, and underwriting the loans. (Id. ¶ 22.)

         On May 14, 2012, RFC filed for Chapter 11 bankruptcy protection in the United States Bankruptcy Court for the Southern District of New York. (Id. ¶ 55); In re Residential Capital, LLC, Case No. 12-12020 (MG) (Bankr. S.D.N.Y. filed May 14, 2012). By that time, RFC had spent millions of dollars repurchasing defective loans. (PNC Compl. ¶ 61.) Hundreds of proofs of claim related to allegedly defective mortgage loans were filed in connection with the bankruptcy proceedings. (Id. ¶ 63.) The Bankruptcy Court eventually approved a global settlement that provided for resolution of the RMBS-related liabilities for more than $10 billion. (Id. ¶ 68.) The Chapter 11 bankruptcy plan (“Plan”) became effective on December 17, 2013. (Id.) Under the Plan, the Trust succeeded to all of RFC's rights and interests. (Id. ¶¶ 15, 69.) The purpose of the Trust is to monetize RFC's remaining assets, pursue claims in litigation, and distribute the proceeds to RFC's creditors. (Id. ¶ 12.)

         Two of the correspondent lenders with whom RFC did business were Community Bank of Northern Virginia (“CBNV”), a predecessor-in-interest to PNC; and Cimarron Mortgage Company (“Cimarron”), a predecessor-in-interest to Origin. (See PNC Compl. ¶¶ 16, 19; Compl. ¶¶ 16, 19 [Case No. 17-cv-0203, Doc. No. 1] (“Origin Compl.”).) PNC and Origin are sued in these actions in their capacities as successors to CBNV and Cimarron, respectively.[1]

         The Trust brings two claims against PNC and Origin: (1) a breach of contract claim founded on alleged breaches of warranties and representations, and (2) an indemnification claim. (PNC Compl. ¶¶ 70-83; Origin Compl. ¶¶ 75-88.) As the basis for federal subject matter jurisdiction, the Trust invokes bankruptcy jurisdiction under 28 U.S.C. § 1334 and diversity jurisdiction under 28 U.S.C. § 1332. (PNC Compl. ¶ 17; Origin Compl. ¶ 17.)

         Through PNC's motion to dismiss, PNC moves to dismiss all claims against it pursuant to Federal Rule of Civil Procedure 12(b)(1), asserting a lack of subject matter jurisdiction based on either diversity of citizenship or bankruptcy-related jurisdiction. Alternatively, PNC asks the Court to abstain from exercising jurisdiction under 28 U.S.C. § 1334(c)(1). PNC also contends that the Trust's claims against it are barred by the prohibition against claim splitting. Origin seeks leave to join in PNC's arguments concerning subject matter jurisdiction and asks the Court to dismiss all claims against it on those grounds.


         A. Bankruptcy “Related To” Subject Matter Jurisdiction

         PNC argues that this Court lacks bankruptcy jurisdiction in that the Trust's claims are not “related to” the underlying bankruptcy proceedings. PNC acknowledges that this Court has already determined the existence of “related to” jurisdiction in several earlier cases consolidated in this action, but asks the Court to give “fresh consideration” to the issue. (PNC's Mem. Supp. Mot. Dismiss at 9 n.4 [Doc. No. 2347].)

         1. The May 18, 2015 Order

         In an Order dated May 18, 2015, this Court determined that bankruptcy jurisdiction existed pursuant to 28 U.S.C. § 1334(b) in several cases transferred to the District of Minnesota from the United States Bankruptcy Court for the Southern District of New York. (Order at 8-12, May 18, 2015 [Doc. No. 452] (“Transfer Defs. Order”).) The supporting legal authority and rationale for that determination bear repeating.

         Federal district courts “have original but not exclusive jurisdiction of all civil proceedings arising under title 11, or arising in or related to cases under title 11.” 28 U.S.C. § 1334(b). “Congress did not delineate the scope of ‘related to' jurisdiction, but its choice of words suggests a grant of some breadth.” Celotex Corp. v. Edwards, 514 U.S. 300, 307-08 (1995); see In re NWFX, Inc., 881 F.2d 530, 533 (8th Cir. 1989) (construing broadly the concept of “related to” jurisdiction). Federal subject matter jurisdiction exists in a “related to” case when there is “some nexus between the civil proceeding and the Title 11 case.” Integrated Health Servs. of Cliff Manor, Inc. v. THCI Co., LLC, 417 F.3d 953, 958 (8th Cir. 2005) (quoting Specialty Mills, Inc. v. Citizens State Bank, 51 F.3d 770, 774 (8th Cir. 1995)). “A claim is ‘related to' a bankruptcy proceeding within ...

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