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KAHN v. SALOMON BROS.

February 11, 1993

ALAN R. KAHN, Plaintiff,
v.
SALOMON BROTHERS INC, PAUL W. MOZER, THOMAS MURPHY, JOHN GUTFREUND, and THOMAS STRAUSS, Defendants, -and- DISCOUNT CORPORATION OF NEW YORK, Nominal Defendant.


Nickerson


The opinion of the court was delivered by: EUGENE H. NICKERSON

MEMORANDUM AND ORDER

NICKERSON, District Judge:

 Salomon and Discount removed the action to this court pursuant to 28 U.S.C. § 1441(b), asserting that the complaint's alleged violations of United States government rules governing Treasury auctions raised a federal question.

 Kahn has moved pursuant to 28 U.S.C. § 1447 to remand this action to state court contending that the complaint does not raise any federal claim and hence removal was improper. He requests costs and attorneys' fees under § 1447(c) and sanctions against Salomon and Discount under Fed. R. Civ. P. 11.

 Salomon and Discount oppose the motion.

 I.

 The complaint alleges in substance the following.

 Salomon engaged in trading Treasury Bills, Notes and Bonds (Treasuries), which it purchased from the United States government at weekly auctions. Starting in July 1990, defendants violated Federal rules prohibiting bids for more than thirty-five percent of the Treasuries offered at any one auction by submitting false and unauthorized bids. Specifically, Salomon purchased eighty-five percent of the two-year Treasuries sold at an auction held May 22, 1991 thereby enabling it to control the market and artificially raise the price.

 Prior to the May auction Discount had entered into agreements with its customers to sell the Treasuries it expected to purchase at that auction. Salomon's purchase of eighty-five percent of the Treasuries prevented Discount from acquiring them at the May 1991 auction, forcing it to purchase them in the secondary market at a higher price. Discount lost money when it then resold them to its customers at the lower price set earlier in the agreements.

 In its papers, Salomon admits that in August 1991 it disclosed that at certain auctions defendant Paul W. Moser, then head of its Government Trading Desk, "improperly bid for and acquired Treasury securities for Salomon's account."

 In the wake of Salomon's disclosure, numerous lawsuits were filed against it. On May 20, 1992, pursuant to a settlement with the United States government, Salomon established a fund of $ 100 million, to be administered by an appointee of the United States District Court for the Southern District of New York, for the payment of private claims against Salomon.

 More than thirty cases brought by individuals and companies injured by Salomon, including nominal defendant Discount, have been consolidated before Judge Robert P. Patterson in the Southern District in order to "eliminate duplicative discovery, prevent inconsistent pretrial rulings, and conserve the resources of the parties, their counsel and the judiciary." In Re Salomon Bros. Treasury Sec. Litig., 796 F. Supp. 1537 (J.P.M.L. 1992) (transferring case brought in Northern District of Illinois to the Southern District of New York).

 By litigating in state court, Kahn seeks to avoid this coordinated attempt to resolve all claims against Salomon.

 On October 7, 1992, the Judicial Panel on Multidistrict Litigation (the Panel) conditionally ordered this case transferred pursuant to 28 U.S.C. § 1407 to the Southern District of New York and assigned to Judge Patterson on the grounds that it "involves questions of fact which are common to the actions previously transferred" and assigned to Judge Patterson. Kahn v. Salomon Brothers, Inc., E.D.N.Y. No. 92 CV 2293, J.P.M.L. No. 933, Conditional Transfer Order (October 7, 1992).

 The clerk of the Panel informs this court that Kahn moved to vacate this order, and a hearing was held before the Panel on January 29, 1993. On February 3, 1993, the Panel deferred its decision on the motion for thirty days in order to afford this ...


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