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RacePoint Partners, LLC v. JPMorgan Chase Bank

October 26, 2006

RACEPOINT PARTNERS, LLC AND WILLOW CAPITAL-I, L.L.C. PLAINTIFFS,
v.
JPMORGAN CHASE BANK, DEFENDANT.
RACEPOINT PARTNERS, LLC AND WILLOW CAPITAL-II, L.L.C. PLAINTIFFS,
v.
JPMORGAN CHASE BANK, DEFENDANT.



The opinion of the court was delivered by: Miriam Goldman Cedarbaum United States District Judge

OPINION

CEDARBAUM, J.

Defendant moves to dismiss plaintiffs' claims in these two related actions. Both actions were removed from the Supreme Court of New York County. Plaintiffs sue for breach of contract, breach of implied duty of good faith and fair dealing, and breach of fiduciary duty arising out of defendant's alleged failure to perform its duties as the indenture trustee for Enron notes issued in 1999 and 2001. Plaintiffs purchased the notes from their precedessor noteholders immediately prior to and following Enron's filing for bankruptcy in December 2001. Defendant argues that plaintiffs' claims must be dismissed because plaintiffs are not entitled to assert the claims of their predecessor noteholders under N.Y. Gen. Oblig. Law § 13-107, and because they have otherwise failed to state a claim.

For the reasons that follow, the 06 Civ. 2501 action is remanded to the Supreme Court of New York County as improvidently removed. As to the 06 Civ. 2500 action, defendant's motion to dismiss is granted, but plaintiffs are given leave to conduct limited discovery on the applicability of New York law to their claims on the 1999 notes and to file an amended complaint by no later than December 29, 2006.

BACKGROUND

In the first action, 06 Civ. 2500, plaintiffs seek damages for defendant's alleged breach of its contractual obligations under a 1999 Enron Indenture. Defendant's predecessor, The Chase Manhattan Bank, was the indenture trustee under an April 8, 1999 Indenture with Enron Corporation. Complaint 06 Civ. 2500 ("Action I") ¶ 1. Enron raised 400 million euros pursuant to the 1999 Indenture by issuing 4.375% notes. Id. Enron defaulted on the 1999 Notes on or about December 2, 2001, when it filed for bankruptcy. Plaintiffs currently hold notes in the principal amount of 177,128,000 euros. Id.

In the second action, 06 Civ. 2501, plaintiffs seek damages for defendant's alleged breach of its contractual obligations under a 2001 Enron Indenture. The Chase Manhattan Bank was also the indenture trustee under a February 7, 2001 Indenture with Enron. Complaint 06 Civ. 2501 ("Action II") ¶ 1. Enron raised $1.25 billion pursuant to the 2001 Indenture by issuing zero coupon convertible notes. Id. Enron defaulted on the 2001 Notes on or about December 2, 2001. Plaintiffs currently hold notes in the principal amount of $1,006,893,300. Id.

The Complaints do not allege the dates on which plaintiffs purchased any of the notes at issue in these actions. Nor do they allege the identities of the noteholders from whom plaintiffs purchased their notes. However, in an opt-out request from a related class action currently pending in Texas, Newby v. Enron Corp., No. H-01-3624 (S.D. Tex.)(the "Newby action"), an affiliate of Willow Capital-I and Willow Capital-II asserts that it purchased the 4.375% notes now held by Willow Capital-I on November 29, 2001, three days before Enron filed for bankruptcy on December 2, 2001. In a separate opt-out notice from the Newby action, plaintiff Racepoint Partners asserts that it purchased all of its notes after Enron's bankruptcy filing. Counsel for plaintiffs reiterated at oral argument that plaintiffs acquired their notes at various times, starting a few days before the bankruptcy and continuing through 2002. See 7/6/06 Hrg. Tr. at 17.

The Newby action, from which all plaintiffs have opted-out, is a nationwide securities class action that includes purchasers of the 2001 and 1999 Notes in the plaintiff class. JPMorgan Chase is also a defendant in the Newby action. The Newby class includes all of the predecessor noteholders from whom plaintiffs purchased their notes, except those who opted out of that class. The Newby plaintiffs assert only securities law claims; they do not assert any common law claims for defendant's alleged breach of its contractual obligations under the 1999 and 2001 Indentures. On January 27, 2006, defendant entered into a stipulation of settlement with the Newby plaintiffs. The settlement was preliminarily approved on February 22, 2006 and an order of final judgment and dismissal was entered on May 24, 2006.

DISCUSSION

I. Federal Jurisdiction

The parties argue that the Edge Act, 12 U.S.C. § 632, authorizes federal jurisdiction over both of these actions. Defendant initially removed both actions to federal court under Section 632 and on diversity of citizenship grounds, but the parties later agreed at oral argument that there is no diversity of citizenship in either action. See 7/6/06 Hrg. Tr. at 7. The parties maintain, however, that there is federal jurisdiction over both of these actions under the Edge Act. Section 632 provides, in relevant part:

Notwithstanding any other provision of law, all suits of a civil nature at common law or in equity to which any corporation organized under the laws of the United States shall be a party, arising out of transactions involving international or foreign banking, or banking in a dependency or insular possession of the United States, or out of other international or foreign financial operations, either directly or through the agency, ownership, or control of branches or local institutions in dependencies or insular possessions of the United States or in foreign countries, shall be deemed to arise under the laws of the United States, and the district courts of the United States shall have original jurisdiction of all such suits; and any defendant in any such suit may, at any time before the trial thereof, remove such suits from a State court into the district court of the United States for the proper district by following the procedure for the removal of causes otherwise provided by law.

At oral argument, the parties agreed that defendant is a "corporation organized under the laws of the United States" for purposes of Section 632. See 7/6/06 Hrg. Tr. at 8. Thus, there is federal jurisdiction over these suits if they arise out of "transactions involving international or ...


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