Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

In re Reserve Fund Securities and Derivative Litigation

November 3, 2009

IN RE THE RESERVE FUND SECURITIES AND DERIVATIVE LITIGATION
CAXTON INTERNATIONAL LIMITED, CAXTON EQUITY GROWTH HOLDINGS, LP, INDIVIDUALLY, AND DERIVATIVELY ON BEHALF OF THE RESERVE INTERNATIONAL LIQUIDITY FUND, LTD., PLAINTIFFS,
v.
RESERVE INTERNATIONAL LIQUIDITY FUND, LTD., RESERVE MANAGEMENT CO., INC., RESRV PARTNERS, INC., THE RESERVE FUND, BRUCE R. BENT, BRUCE R. BENT II, AND ARTHUR BENT III, DEFENDANTS.
VERISIGN SARL, AND VERISIGN SWITZERLAND S.A., PLAINTIFFS,
v.
RESERVE INTERNATIONAL LIQUIDITY FUND LTD., AND RESERVE MANAGEMENT COMPANY, INC., DEFENDANTS.



The opinion of the court was delivered by: Paul G. Gardephe, U.S.D.J.

MEMORANDUM OPINION AND ORDER

The two above-captioned cases (09-cv-782, 09-cv-3786) arise from the collapse of the Reserve International Liquidity Fund (the "International Fund"), an offshore money market fund organized as a limited liability company under the British Virgin Islands Business Companies Act of 2004. In September 2008, the International Fund held approximately $125 million in Lehman Bros. Holdings, Inc. debt securities. After Lehman announced on September 14, 2008 that it would file a petition for bankruptcy protection the following day, a run on the International Fund ensued. On September 17, 2008, the International Fund announced that it had "broken the buck" -- i.e., its per-share net asset value ("NAV") had fallen below $0.995 at approximately 5:00 p.m. on September 16, 2008. The International Fund also announced that only redemption requests received before 3:00 p.m. on September 16 would be processed at an NAV of $1.00 per share. Going forward, the International Fund's NAV would be calculated at the close of business of each day. Although redemption requests submitted as early as September 15 had not been paid, the International Fund officially suspended redemptions as of September 22, 2008. The drop in the NAV of the Fund and the suspension of redemptions led to this litigation.

Plaintiffs Caxton International Limited and Caxton Equity Growth Holdings, LP's (together, "Caxton") are investment funds, each with its principal place of business in Bermuda. (Hanin Decl. Ex. 1 ¶¶ 12--13) Caxton International is a British Virgin Islands corporation, and Caxton Equity is a Bermuda Limited Partnership. (Hanin Decl. Ex. 1¶¶ 12--13) Plaintiffs Verisign Sarl and Verisign Switzerland, S.A. (together, "Verisign") are Swiss corporations, each with its principal place of business in Switzerland. (Verisign Notice of Removal, Ex. A ¶¶ 5--6)

Both the Caxton and Verisign actions name as defendants the International Fund and the Reserve Management Company, Inc. ("RMCI") -- a New Jersey corporation with its principal place of business in New York -- which serves as an investment advisor to the International Fund. (Defendant's Memorandum of Law in Opposition to Caxton's Motion to Remand*fn1 at 3; Hanin Decl. Ex. 1 ¶¶ 14--15; Defendant's Memorandum of Law in Opposition to Verisign Sarl and Verisign Switzerland S.A.'s Motion to Remand*fn2 at 2; Verisign Notice of Removal, Ex. A ¶¶ 7--8) Caxton also names the following as defendants: Resrv Partners, Inc. ("Resrv"), a New York corporation with its principal place of business in New York, which distributes International Fund shares; the Reserve Fund, a Massachusetts business trust with its principal office in New York, which Caxton alleges "was affiliated with" the International Fund (Hanin Decl. Ex. 1 ¶ 20); and New York residents Bruce R. Bent ("Bent"), Bruce R. Bent II ("Bent II"), and Arthur Bent III ("Arthur Bent") (collectively, the "Bent Defendants"), who comprise the International Fund's Board of Directors. (Hanin Decl. Ex. 1 ¶¶ 14, 29)

Caxton filed suit in New York State Supreme Court, New York County, on October 6, 2008, and on January 9, 2009, Caxton provided the named defendants with a copy of a draft amended complaint containing twenty-two causes of action, including: a direct claim for breach of contract (Count 1) against the International Fund; direct claims for breach of contract (Counts 2, 4) and breach of fiduciary duty (Count 8) against RMCI and the Bent Defendants; a derivative claim for breach of contract (Count 3) against RMCI and the Bent Defendants; and a direct claim for rescission and damages (Count 19) against the International Fund and the Bent Defendants, jointly and severally. (Hanin Decl. Ex. 1 ¶¶ 105--129, 145--150, 210--216)

On March 23, 2009, Verisign brought suit in New York State Supreme Court, New York County, against the International Fund and RMCI. Verisign's complaint raises claims for breach of contract (Count 1) and declaratory relief (Count 2) against the International Fund, and claims for breach of fiduciary duty (Count 3) and breach of contract (Count 4) against RMCI. (Verisign Notice of Removal, Ex. A ¶¶ 23-- 37)

Defendants in both cases subsequently filed notices of removal pursuant to 28 U.S.C. §§ 1331 and 1441. These cases have been assigned to this Court pursuant to an order of the Judicial Panel on Multi-District Litigation.

Plaintiffs moved to remand the above-captioned actions to state court pursuant to 28 U.S.C. § 1447. On August 3, 2009, this Court heard oral argument concerning these motions. Based on the parties' written submissions and oral argument, and for the reasons stated below, Plaintiffs' motions to remand will be granted. Plaintiffs' motions for attorneys' fees, however, will be denied.

I. DEFENDANTS HAVE NOT IDENTIFIED A BASIS FOR FEDERAL JURISDICTION

Federal courts have jurisdiction over actions "arising under the Constitution, laws, or treaties of the United States." 28 U.S.C. § 1331. A case arises under federal law where "'a well-pleaded complaint establishes either that federal law creates the cause of action or that the plaintiff's right to relief necessarily depends on resolution of a substantial question of federal law.'"*fn3 Empire Healthchoice Assur., Inc. v. McVeigh, 547 U.S. 677, 689-90 (2006) (quoting Franchise Tax Bd. Of Cal. v. Constr. Laborers Vacation Trust for Southern Cal., 463 U.S. 1, 27-28 (1983)).

Under the well-pleaded complaint rule, a plaintiff is "free to avoid federal jurisdiction by pleading only state claims even where a federal claim is also available." Marcus v. AT&T Corp., 138 F.3d 46, 52 (2d Cir. 1998). Plaintiffs are limited only by the artful pleading doctrine -- "an independent corollary" of the well-pleaded complaint rule -- which prevents a plaintiff from defeating federal jurisdiction by "omitting to plead necessary federal questions in a complaint." Franchise Tax Bd. Of Cal., 463 U.S. at 22. Federal jurisdiction may not be premised on the assertion of a federal defense, "even if the defense is anticipated in the plaintiff's complaint, and even if both parties admit that the defense is [essential to adjudication of the claims]." Id. at 14.

Courts assessing grounds for removal "'must make principled, pragmatic decisions, engaging in a selective process which picks the substantial causes out of the web and lays the other ones aside.'" Fin. and Trading, Ltd. v. Rhodia S.A., No. 04 Civ. 6083 (MBM), 2004 U.S. Dist. LEXIS 24148, 2004 WL 2754862, at *6 (S.D.N.Y. Nov. 30, 2004) (quoting Barbara v. New York Stock Exch., Inc., 99 F.3d 49, 54 (2d Cir. 1996)).

In developing a standard for assessing whether a plaintiff's state law claim "necessarily depends on resolution of a substantial question of federal law," Empire Healthchoice Assur., Inc., 547 U.S. at 689-90, the Supreme Court has held that courts must determine whether the claim "necessarily raise[s] a stated federal issue, actually disputed and substantial, which a federal forum may entertain without disturbing any congressionally approved balance of federal and state judicial responsibilities." Grable & Sons Metal Prods., Inc. v. Darue Eng'g & Mfg., 545 U.S. 308, 314 (2005).

Grable creates only a "special and small . . . [and] slim category" of cases that may be appropriately removed to federal court. Empire Healthchoice Assur., Inc., 547 U.S. at 701. Indeed, the "mere presence" of a federal issue does not create federal jurisdiction over a state claim. Ins. Corp. of New York v. Monroe Bus Corp., 491 F. Supp. 2d 430, 434 (S.D.N.Y. 2007) (citing Merrell Dow Pharms. Inc. v. Thompson, 478 U.S. 804, 808, 813-14 (1986)). Nor is the assertion of a ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.