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Allstate Insurance Company, Allstate Life v. Credit Suisse Securities (Usa) LLC

October 19, 2011


The opinion of the court was delivered by: Naomi Reice Buchwald United States District Judge


Plaintiffs brought this action in the New York State Supreme Court of New York County on February 28, 2011, alleging state common law claims of fraud and negligent misrepresentation. Defendants removed the action to this Court on March 31, 2011, pursuant to 28 U.S.C. §§ 1334(b), 1441, 1446, and 1452(a). On May 2, 2011, plaintiffs moved to remand the case back to state court, or alternatively for the Court to abstain from exercising jurisdiction pursuant to 28 U.S.C. §§ 1334(c)(1)-(2) and 1452(b), and for costs and expenses incurred as a result of the removal pursuant to 28 U.S.C. § 1447(c).

For the reasons stated below, plaintiffs' motion to remand is granted and request for costs and expenses is denied.


Plaintiff Allstate Insurance Company is a company formed under the laws of Illinois, with its principal place of business in Northbrook, Illinois, and licensed to do business in New York. Plaintiff Allstate Life Insurance Company is also an Illinois corporation, while plaintiff Allstate Bank is a federally chartered thrift institution registered in Illinois. Plaintiff Kennett Capital is a Delaware corporation. All plaintiffs are subsidiaries of The Allstate Corporation.

Defendants, all part of the Credit Suisse corporate family and formed in Delaware with their principal places of business in New York, sponsored, sold, underwrote, or issued residential mortgage-backed securities (the "Certificates") purchased by plaintiffs. Defendant DLJ Mortgage Capital, Inc. acted as sponsor or seller for all of the relevant offerings of the Certificates. Defendant Credit Suisse Securities (USA) LLC, or its predecessor Credit Suisse First Boston LLC, acted as underwriter for the Certificates, while defendants Credit Suisse First Boston Mortgage Securities Corp. and Asset Backed Securities Corporation were the registrants for certain registration statements filed with the SEC and issued certain of the Certificates. Together, defendants purchased mortgage loans from third-party originators, transferred them to trusts, and then issued the Certificates, which represented interests in the mortgage loans held by the trusts.

The Certificates were grouped in tranches according to the level of risk associated with the underlying mortgage loans. Investors must rely on the issuers' registration statements, prospectuses and supplements, terms sheets, and other written materials (the "Offering Materials") to learn about such risk; issuers, in turn, rely on the loan files developed by originators, which files are unavailable to investors. Defendants sold the Certificates to various investors --including plaintiffs, who purchased over $231 million worth of the Certificates, which were typically rated AAA/Aaa or AA/Aa.

Plaintiffs allege that defendants' failure to disclose that the loans underlying the Certificates constituted "a toxic mix" and were "highly likely to default" caused a "drastic drop in the value of the Certificates," leading to significant losses for plaintiffs. (Compl. at ¶¶ 1, 5.) The complaint includes claims for common law fraud, fraudulent inducement, and negligent misrepresentation, based on the allegation that defendants knew or should have known that they were making materially false or misleading statements or omissions in connection with the Certificates.

On March 31, 2011, defendants removed the action to this Court, asserting that the Court has "related to" jurisdiction under 28 U.S.C. § 1334(b) because defendants may have indemnification or contribution claims against three originators who are currently in bankruptcy proceedings: Finance America, LLC ("Finance America"),*fn2 New Century Mortgage Corporation ("New Century"), and Taylor, Bean & Whitaker Mortgage Corporation ("TBW") (collectively, the "Bankrupt Originators"). The Bankrupt Originators were responsible for approximately 7.4% of the total value of the loans in the securitizations at issue; the remainder was contributed by a number of other originators not named in the Notice of Removal. Defendants assert that, based on written agreements between them, "the Bankrupt Originators would owe certain of the defendants indemnity and/or contribution obligations that could affect the debtors' property in the event a loss is sustained by Defendants in connection with this action with respect to the Certificates." (Notice of Removal ¶ 18.)

BNC Mortgage LLC ("BNC"), the ultimate successor to Finance America, filed a petition in this district for Chapter 11 reorganization on January 9, 2009. Defendants have filed no proofs of claim in that proceeding, and the bar date for claim filing was September 22, 2009.

New Century instituted its Chapter 11 reorganization on April 2, 2007 in the District of Delaware. The bar date for any proofs of claim in that proceeding was August 31, 2007, and, prior to that date, defendants did file certain claims, which have since been settled. New Century's liquidation plan was confirmed on November 20, 2009, and the proceeding is currently in the post-confirmation stage.

TBW filed for reorganization under Chapter 11 in the Middle District of Florida on August 24, 2009. Defendants filed a proof of claim in that proceeding on June 11, 2010, four days before the bar date. That claim was based on the agreement pursuant to which defendants purchased mortgage loans from TBW, though the claim did not assert indemnification rights.


I. Legal ...

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