Firefighters' Ret. Sys. v. Citco Grp. Ltd.

FIREFIGHTERS' RETIREMENT SYSTEM, ET. AL. v. CITCO GROUP LIMITED, ET. AL.

CIVIL ACTION 13-373-SDD-EWD

UNITED STATES DISTRICT COURT MIDDLE DISTRICT OF LOUISIANA

September 30, 2016

RULING

Before the Court are the following Motions:

1. Citco Technology Management, Inc.'s ("CTM") Motion to Dismiss for Lack of Personal Jurisdiction, Failure to Meet the Pleading Requirements of Rule 8(a) of the Federal Rules of Civil Procedure, and Failure to State a Claim for Relief;¹

2. Citco (Canada), Inc.'s ("Citco Canada") and Citco Fund Services (Bermuda) Limited ("Citco Bermuda") Motion to Dismiss for Lack of Personal Jurisdiction, Failure to Meet the Pleading Requirements of Rule 8(a) of the Federal Rules of Civil Procedure, and Failure to State a Claim for Relief;²

3. Citco Bank Nederland N.V. Dublin Branch ("CBN Dublin"), Citco Banking Corporation, N.V. ("Citco Banking"), Citco Global Custody N.V. ("Citco Global Custody"), and Citco Group Ltd.'s Motion to Dismiss for Lack of Personal Jurisdiction, Failure to Meet the Pleading Requirements of Rule 8(a) of the Federal Rules of Civil Procedure, and Failure to State a Claim for Relief;³ and4. Citco Fund Services (Europe) BV's ("Citco Europe") Motion to Dismiss for Lack of Personal Jurisdiction, Failure to Meet the Pleading Requirements of Rule 8(a) of the Federal Rules of Civil Procedure, and Failure to State a Claim for Relief.⁴

The Motions are opposed⁵ and replies⁶ were submitted. For the reasons which follow, the Motions will be granted in part and denied in part.

I. FACTUAL and PROCEDURAL BACKGROUND

Plaintiffs are three Louisiana pension funds, Firefighters' Retirement System, Municipal Employees Retirement System of Louisiana, and New Orleans Firefighters' Pension & Relief Fund. Plaintiffs filed suit against 23 defendants in State court⁷, asserting claims under the Louisiana Securities Act and Louisiana Unfair Trade Practices Act, as well as third party beneficiary, unjust enrichment, breach of contract, negligent misrepresentation, and general tort claims. The matter was removed pursuant to 28 U.S.C. §1452(a), and jurisdiction is maintained in this Court pursuant 28 U.S.C. 1334(b)⁸.

The Plaintiffs' claims arise from a $100 million investment loss. In April of 2008, the Plaintiff pension funds purchased 100,000 Series N Shares in FIA Leveraged Fund (hereafter "Leveraged") for $100 million. After a series of investment transactions initiated by Leveraged, in March of 2011, Plaintiffs sought to redeem their Series N shares.Ultimately, the shares went unredeemed and the Plaintiffs determined that the investment was illiquid and, thus, the N shares, for which there was no market, were valueless.

Defendant, Citco Technology Management, Inc. ("CTM"), one of twelve Citco⁹ entities named as a Defendant, is a Florida corporation with its principal place of business in Fort Lauderdale and offices in Charlotte, North Carolina, and Jersey City, New Jersey.¹⁰ CTM argues that it has utterly no contact with Louisiana and, thus, the Court cannot constitutionally exercise personal jurisdiction over CTM.¹¹ By Ruling¹² entered on June 21, 2016, this Court granted the Defendant CTM's FRCP 12(b)(2) Motion to Dismiss for Lack of Personal Jurisdiction.¹³ On June 24, 2016, the Court vacated¹⁴ its personal jurisdiction Ruling as to CTM "[i]n light of the Fifth Circuit's Ruling¹⁵ that, at the time of removal, jurisdiction was proper under 28 U.S.C. 1334(b) because the suit involved matters "related to" a Chapter 11 bankruptcy proceeding." The Court ordered the Parties to brief "the applicable legal standard for the Court's exercise of in personam jurisdictionconsidering nationwide service of process authority pursuant to Bankruptcy Rule 7004(d)."¹⁶ The Parties submitted briefs¹⁷ which the Court has considered.

II. LAW AND ANALYSIS OF RULE 12(B)(2) MOTIONS

Defendants, Citco Technology Management, Inc., Peter M. Zayfert, Grant Thornton International Ltd, and Skadden, Arps, Slate, Meagher & Flom LLP (the "removing defendants") removed this matter pursuant to 28 U.S.C. §§ 1332(a), 1334(b), 1367, 1441, 1446 and 1452(a).¹⁸ In their Notice of Removal, the removing defendants stated as "Grounds for Removal", that:

Removal is proper under 28 U.S.C. §1452(a), which provides that "[a] party may remove any claim or cause of action in a civil action ... to the district court for the district where such civil action is pending, if such district has jurisdiction of such claim or cause of action under section 1334 of this title." Title 28 U.S.C. Section 1334(b), in turn, provides that "the district courts shall have original but not exclusive jurisdiction of all civil proceedings arising under title 11, or arising in or related to cases under title 11." As set forth below, this Action is related to a bankruptcy case under title11 pending in the United States Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court"). Specifically, on June 29, 2012, Fletcher International Ltd. ("FIL" or the "Debtor") filed a voluntary petition under chapter 11 of title 11 of the United States Code, 11. U.S.C. §§ 101 et seq. The Debtor's case is being administered in the Bankruptcy Court under Chapter 11 Case No. 12-12796 (REG) (the "Bankruptcy Case").

The removing defendants further allege that the Plaintiffs filed a proof of claim in the Bankruptcy Case. This Court, affirmed by the Fifth Circuit, has concluded that this case is properly in federal district court on "related to" jurisdiction under § 1334(b).¹⁹ This is law of the case. "Because the Court has 'related to' bankruptcy jurisdiction pursuant to§ 1334(b), the entire body of the Federal Rules of Bankruptcy Procedure...applies to this action."²⁰

Movants argue that the claims in this action are non-core state law claims and that assertion of personal jurisdiction over them in such removed non-core proceedings based on a nationwide service of process under bankruptcy rules is a violation of the due process clause of the Fifth Amendment.²¹ Citing Daimler and Walden,²² Defendants argue that, notwithstanding nationwide service of process, constitutional due process must nonetheless be scrutinized under the purposeful minimum contacts analysis. The Court agrees that a federal nationwide service of process authority does not suspend or displace the constitutional guarantees of due process. However, as conceded by the Defendants, the Fifth Circuit has upheld the constitutionality of exercising personal jurisdiction over an out of state defendant based on nationwide service of process and minimum contacts with the United States.²³

In Busch v. Buchman, Buchman & O'Brien, Law Firm,²⁴ the court considered personal jurisdiction based on nationwide service of process provisions in the 1934Securities Exchange Act.²⁵ There, plaintiff alleged that defendant, a dissolved New York law firm ("Buchman"), misrepresented information and failed to disclose material information included in a tax opinion and confidential offering memorandum drafted by the firm. Buchman filed a motion to dismiss, arguing that it did not have minimum contacts with Texas and, therefore, the court could not exercise personal jurisdiction. The Busch court disagreed, explaining that 15 U.S.C. §78aa "gives the district court the authority to serve defendants nationwide"²⁶ and that "'due process requires only that a defendant in a federal suit have minimum contacts with the United States.'"²⁷ The Fifth Circuit stated that "while the Due Process Clause must be satisfied if a forum is to acquire personal jurisdiction over a defendant, sovereignty defines the scope of the due process test."²⁸ "[W]hen a federal court is attempting to exercise personal jurisdiction over a defendant in a suit based upon a federal statute providing for nationwide service of process, the relevant inquiry is whether the defendant has had minimum contacts with the United States."²⁹ The court concluded that because the relevant sovereign was the United States, "it does not offend traditional notions of fair play and substantial justice to exercise personal jurisdiction over a defendant residing within the United States."³⁰ Accordingly, under Busch, where the relevant sovereign is the United States, the "forum" with which the defendant must have minimum contacts to satisfy due process is expanded to be the United States (rather than a particular state).

In Bellaire General Hospital v. Blue Cross Blue Shield of Michigan,³¹ the Fifth Circuit had occasion to revisit its "national contacts" analysis of Busch. There, the court considered the ERISA provision which provides for nationwide service of process.³² Defendant, a corporation operating exclusively within the state of Michigan, argued that it did not have sufficient contacts with the state of Texas to be subject to personal jurisdiction in the Southern District of Texas. The Fifth Circuit found that the district court properly exercised personal jurisdiction over the defendant in Texas, explaining that it "placed no limitation on our conclusion in Busch regarding personal jurisdiction in cases involving federal statutes providing for nationwide service of process" and therefore the case before it fell "squarely within our Busch holding."³³ While the Bellaire court "dutifully appl[ied] Busch,"³⁴ it expressed "misgivings" stating, "[w]e view personal jurisdiction and service of process as conceptually distinct issues. We fail to apprehend how personal jurisdiction can be separated from due process by Congressional enactment of nationwide service of process provisions."³⁵

Notwithstanding the philosophical questions recognized by the Fifth Circuit, Busch and Bellaire remain binding authority on this Court. Under the law in this Circuit, the personal jurisdiction inquiry is collapsed into a question of a defendant's contacts with the United States. Thus far, the Fifth Circuit does not require any additional "fairness orreasonableness" test as a matter of constitutional due process.³⁶ The...