Norris v. Brady

668 F.Supp.3d 1257

Michael NORRIS, et al., Plaintiffs, v. Thomas BRADY, et al., Defendants.

Case No. 1:23-cv-20439-KMM

United States District Court, S.D. Florida

Signed April 4, 2023

Adam M. Moskowitz, The Moskowitz Law Firm, PLLC, Coral Gables, FL, Jose Manuel Ferrer, Mark Migdal and Hayden, Miami, FL, Joseph M. Kaye, The Moskowitz Law Firm, PLLC, Miami, FL, Stephen N. Zack, Ursula Ungaro, Boies Schiller Flexner LLP, Miami, FL, Alexander Boies, David Boies, Boies Schiller Flexner LLP, Armonk, NY, for Plaintiffs.

Stephanie Anne Casey, Zachary Andrew Lipshultz, Roberto Martinez, Colson Hicks Eidson, Coral Gables, FL, Andrew B. Clubok, Pro Hac Vice, Brittany M.J. Record, Pro Hac Vice, Susan E. Engel, Pro Hac Vice, Latham & Watkins LLP, Washington, DC, Elizabeth A. Greenman, Pro Hac Vice, Jessica Stebbins Bina, Pro Hac Vice, Marvin Putnam, Pro Hac Vice, Latham & Watkins LLP, Los Angeles, CA, Michele D. Johnson, Pro Hac Vice, Latham & Watkins LLP, Costa Mesa, CA, for Defendant Thomas Brady.

Brandon Scott Floch, Jeffrey Eldridge Marcus, Michael Anthony Pineiro, Marcus Neiman Rashbaum & Pineiro LLP, Miami, FL, Jeffrey Adam Neiman, Marcus Neiman & Rashbaum LLP, Fort Lauderdale, FL, Andrew B. Brettler, Pro Hac Vice, Berk Brettler LLP, West Hollywood, CA, for Defendant Kevin O'Leary.

Christopher Stephen Carver, Akerman LLP, Miami, FL, Jason Samuel Oletsky, Katherine Ann Johnson, Akerman LLP, Fort Lauderdale, FL, for Defendant David Ortiz.

ORDER

K. MICHAEL MOORE, UNITED STATES DISTRICT JUDGE

THIS CAUSE came before the Court upon Plaintiffs Michael Norris, Brandon Rowan, Michael Livieratos, Shengyun Huang, Vijeth Shetty, and Bo Yang's (collectively, "Plaintiffs") Motion to Remand. ("Mot.") (ECF No. 22). Defendants Thomas Brady ("Defendant Brady"), David Ortiz, and Kevin O'Leary (collectively, "Defendants") filed a response in opposition, ("Resp.") (ECF No. 37). And Plaintiffs filed a reply ("Reply") (ECF No. 42). The Motion is now ripe for review. As discussed below, the Motion is DENIED.

I. BACKGROUND

Plaintiffs filed this action in state court seeking to hold Defendants responsible for losses resulting from the collapse of the FTX cryptocurrency exchange. See generally, Amended Complaint ("Am. Compl.") (ECF No. 1-2). Plaintiffs allege that the Defendants each promoted, assisted in, and actively participated in the offer and sale of unregistered securities in the form of identical Yield-Bearing Accounts ("YBAs") through their involvement with FTX Trading Ltd. d/b/a FTX and West Realm Shires Services Inc. d/b/a FTX US. Id. at 1. The Amended Complaint asserts four claims against each Defendant. Id. Each claim is styled as requesting relief under Florida state law. Id.

On November 11, 2022, FTX Trading Ltd. and 101 individual affiliated debtors (collectively, the "FTX Debtors") commenced bankruptcy proceedings in the U.S. Bankruptcy Court for the District of Delaware by filing petitions for voluntary relief under Chapter 11 of the U.S. Code. Id. ¶ 50; see In re FTX Trading Ltd., No. 22-11068 (Bankr. D. Del.).

Defendants filed their Notice of Removal ("Notice") (ECF No. 1) on February 3, 2023, asserting subject matter jurisdiction under 28 U.S.C. § 1331. According to Defendants, Count Four of Plaintiffs' state-court Complaint presents a federal question, thereby invoking federal question jurisdiction. Notice ¶¶ 20-26. Defendants also assert subject matter jurisdiction under 28 U.S.C. § 1334 because this is a civil proceeding "arising in or related to" a case under the Bankruptcy Code. Id. ¶¶ 15-19.

Now, Plaintiffs request that this Court remand this action back to state court.

II. LEGAL STANDARD

The statute governing removal, 28 U.S.C. § 1441, permits a defendant to remove a case brought in state court to federal court if the federal court has subject matter jurisdiction over the action. See § 1441. The removing party bears the burden of proving that federal subject matter jurisdiction exists. See Mitchell v. Brown & Williamson Tobacco Corp., 294 F.3d 1309, 1314 (11th Cir. 2002). A district court is required to " 'strictly construe the right to remove' and apply a general 'presumption against the exercise of federal jurisdiction, such that all uncertainties as to removal jurisdiction are to be resolved in favor of remand.' " Scimone v. Carnival Corp., 720 F.3d 876, 882 (11th Cir. 2013) (citation omitted). Indeed, "[a] presumption in favor of remand is necessary because if a federal court reaches the merits of a pending motion in a removed case where subject matter jurisdiction may be lacking it deprives a state court of its right under the Constitution to resolve controversies in its own courts." Id.

III. DISCUSSION

Plaintiffs argue this case was improperly removed because: (1) there is no federal question jurisdiction under § 1331, as the Amended Complaint only alleges causes of action pursuant to state law, see Mot. at 10-13; (2) Defendant Brady's Notice of Removal was not timely filed, see id. at 9-10; and (3) Plaintiffs' claims do not arise out of or relate to bankruptcy proceedings, id. at 7-9. Plaintiffs also request attorneys' fees and costs under 28 U.S.C. § 1447(c) on the grounds that there was no objectively reasonable basis for removal. Id. at 13-14. The Court addresses each argument, as well as Defendants' responses, in turn.

1. Federal Question Jurisdiction Exists

Plaintiffs seek to remand this case to state court on the grounds that this action sets forth "four clear claims under Florida law," which rise or fall on the question of whether YBAs are securities under state—not federal—law. Mot. at 10. Thus, Plaintiffs argue there is no federal question jurisdiction under § 1331. See id. Defendants contend, however, that Count Four of the Complaint, while styled as a state law claim, presents a federal question giving rise to federal question jurisdiction.

Count Four of the Complaint requests a declaratory judgment pursuant to the Declaratory Judgment Act, Florida Statutes §§ 86.011 et seq. Compl. ¶¶ 94-101. Therein, Plaintiffs "seek an order declaring that the YBAs are securities to be registered with the SEC and state regulatory authorities . . ." Id. ¶ 101 (emphasis added). While Plaintiffs seek a declaration under state law, Defendants argue that Plaintiffs seek to establish an affirmative federal right—that the YBAs are securities to be registered with the SEC—which gives rise to federal question jurisdiction.

The Supreme Court has set out a circumscribed doctrine that allows a federal court, in certain cases, to hear a state-law claim even if it does not arise under federal law because the claim "implicate[s] significant federal issues" and thereby federal-question jurisdiction will exist. Grable & Sons Metal Prods., Inc. v. Darue Eng'g & Mfg., 545 U.S. 308, 312, 125 S.Ct. 2363, 162 L.Ed.2d 257 (2005) (holding federal question jurisdiction exists over a state quiet title action when the underlying claim turned on the adequacy of the IRS's notice to plaintiff about a tax delinquency before selling the disputed property). The Court held that "federal jurisdiction over a state law claim will lie if a federal issue is: (1) necessarily raised, (2) actually disputed, (3) substantial, and (4) capable of resolution in federal court without disrupting the federal-state balance approved by Congress." Gunn v. Minton, 568 U.S. 251, 258, 133 S.Ct. 1059, 185 L.Ed.2d 72 (2013) (citing Grable, 545 U.S. at 315, 125 S.Ct. 2363). "The mere presence of a federal issue in a state cause of action does not automatically confer federal question jurisdiction," and such jurisdiction will only lie in a very "narrow" category of cases that "necessarily rest" on a "substantial federal question." Merrell Dow Pharm., Inc. v. Thompson, 478 U.S. 804, 813, 106 S.Ct. 3229, 92 L.Ed.2d 650 (1986). Accordingly, the Court considers the four Grable factors in determining whether it has federal jurisdiction over Plaintiffs' state-law claim.

A. Necessarily Raised

Under the first Grable factor, Defendants contend that Count Four of the Complaint "necessarily raises a federal question because Plaintiffs seek to establish an affirmative federal right." Resp. at 7 (citing Ledford v. Peeples, 657 F.3d 1222, 1248 (11th Cir. 2011)). Defendants specifically argue that Plaintiffs' request for a declaration that the YBAs are securities to be registered with the SEC raises a federal question. Id.

Plaintiffs claim that "[t]he addition of such words are entirely superfluous in the context of the claims Plaintiffs assert, and as such amount to no more than a simple scrivener's errors." Mot. at 10. Plaintiffs further "disavow any intent to seek relief under federal law and are prepared to amend their Complaint to strike the SEC reference." Reply at 3. To date, however, Plaintiffs have not moved to amend their Complaint.

At the outset, the Court notes that Plaintiffs' request for a declaration that the YBAs are securities to be registered with the SEC is neither a scrivener's error nor is it superfluous. A scrivener's error is defined as a "clerical error," which is "[a]n error resulting from a minor mistake or inadvertence . . . ; esp., a drafter's or typist's technical error that can be rectified without serious doubt about the correct reading." BLACK'S LAW DICTIONARY, "Error" (11th ed. 2019). Examples include "omitting an appendix from a document; typing an incorrect number; mistranscribing or omitting and obviously needed word; and failing to log a call." Id. Here it cannot be said that Plaintiffs made a minor mistake or mistranscription; rather, they made a substantive, affirmative request for relief. How is the Court to know which of Plaintiffs' other requests for relief are not scriveners' errors? Are Plaintiffs other requests for relief also superfluous? This oversight cannot be fairly characterized as a scrivener's error, and the Court will not erroneously interpret it as such at Plaintiffs' request.

In any event, the Court agrees with Defendants. When a...