The opinion of the court was delivered by: Paul G. Gardephe, U.S.D.J.:
ECF CASE MEMORANDUM OPINION & ORDER
Plaintiff Reserve Management Company ("RMCI") filed this legal malpractice action on September 16, 2011, in the Supreme Court of the State of New York, New York County. (Dkt. No. 1 (Notice of Removal) Ex. 1) On October 6, 2011, Defendants Willkie Farr & Gallagher LLP ("Willkie") and Rose DiMartino removed this action to federal court, asserting that this Court has original jurisdiction over this matter under 28 U.S.C. § 1331, because it "aris[es] under the Constitution, laws or treaties of the United States." (Dkt. No. 1 (Notice of Removal) at 1) RMCI now moves to remand this action to state court. For the reasons stated below, Plaintiff's motion to remand will be denied.
Plaintiff RMCI served as the investment advisor for the Reserve Primary Fund ("the Fund"), a money market fund that, prior to September 2008, held approximately $62.5 billion in assets. (Cmplt. ¶ 2) From July 2002 through September 2008, Willkie provided legal advice to RMCI and the Fund concerning the Investment Company Act of 1940 and other matters. (Id. ¶ 23) Defendant Rose DiMartino, a Willkie partner, had "day-to-day responsibility for counseling and advising RMCI and its principals." (Id. ¶ 11)
The current dispute between RMCI and Willkie has its root in the September 2008 bankruptcy of Lehman Bros., which led to the rapid collapse of the Fund. At the time Lehman announced its intention to file a bankruptcy petition, the Fund held $785 million in Lehman commercial paper. (Id. ¶¶ 2, 39) Lehman's announcement led to a run on the Fund, with "investors . . . submitting redemption requests in massive numbers." (Id. ¶ 39)
RMCI's malpractice complaint presents two broad theories of liability. The first is that -- at the time of Lehman's bankruptcy -- Willkie provided incompetent advice to RMCI that has led the firm, two of its principals -- Bruce Bent, Sr. and Bruce Bent II -- and a related entity to become the subject of an SEC enforcement action:
Based on the Willkie firm's advice, RMCI took certain actions on September 15-16, 2008 for which the SEC now seeks to hold it and the Bents liable under the federal securities laws. Among other things, the Willkie firm, on behalf of RMCI, prepared a draft no-action letter and credit support agreement that the SEC has made the centerpiece of its case against RMCI and the Bents. Specifically, the SEC alleges that such documents contained a material limitation not found in RMCI's statements to investors and the Fund's Board of Trustees made earlier that day -- statements of which Willkie was fully aware when it prepared those draft papers and advised RMCI that they were compliant and proper. In sum, the SEC is seeking to hold RMCI and the Bents liable for actions taken by the Willkie firm.
(Id. ¶ 42) The Complaint further alleges that -- but for the negligent legal advice Willkie gave RMCI in September 2008 -- RMCI would not have been sued by the SEC or by private parties, and would not have incurred millions of dollars in attorneys' fees and other defense expenses. (Id. ¶¶ 3, 5, 45)
In the SEC enforcement action, which is also pending before this Court, the Commission alleges that RMCI, the Bents, and the distributor for the funds managed by RMCI -- Reserv Partners, Inc. -- violated various provisions of the federal securities laws when they "engaged in a systematic campaign to deceive the investing public into believing that the Primary Fund . . . was safe and secure despite its substantial Lehman holdings."*fn1 (09 CV 4346 Cmplt. ¶ 1; see also Cmplt. ¶ 42)
The malpractice complaint's second theory of liability against Willkie is that the firm's simultaneous representation of RMCI and the Fund presented a conflict of interest that the firm never disclosed to RMCI and that has caused significant prejudice to RMCI. (Cmplt. ¶¶ 22-28) The relationship between the Fund and RMCI is governed by a Comprehensive Fee Investment Management Agreement dated June 26, 2007 and amended on July 16, 2007, September 13, 2007, and February 13, 2008, and renewed in September 2008 ("the Management Agreement"). (Id. ¶ 20) The malpractice complaint alleges that
[t]he Willkie firm never advised RMCI . . . with respect to the risks of dual representation in connection with the negotiation, execution, amendment, and renewal of the Management Agreement. Nor did it ever recommend to RMCI that it should at least obtain separate counsel to represent its interests with respect to the negotiation of the Management Agreement. (Id. ¶ 30)
The Management Agreement provides that "RMCI shall not have any liability to the Fund arising from the provision of its investment management services except in the case of willful malfeasance, bad faith, or gross negligence." (Id. ¶ 31) However, "the Management Agreement contains no provision expressly requiring the Fund to indemnify RMCI for losses arising from claims by third parties, or to advance and indemnify RMCI for its attorneys' fees in defending such actions. . . ." (Id. ¶ 32) RMCI claims that Willkie never advised it to request that indemnification and advancement of fees provisions be included in the Management Agreement, and that had such provisions been requested by RMCI, the Fund would have agreed to include them.*fn2 (Id. ¶ 6)
RMCI further claims that Willkie's failure to properly advise RMCI concerning these issues emanated in whole or in part from a conflict of interest stemming from its simultaneous representation of both RMCI and the Fund. The Willkie firm never advised RMCI about the risks of such dual representation, nor that it would be less than zealous in seeking full protection for RMCI from its other client, the Fund, when negotiating their management agreement -- a transaction in which the two clients had divergent interests. (Id. 7) The Complaint goes on to allege that "had the Willkie firm properly advised RMCI, the millions of dollars in attorneys' fees it has incurred and will continue to incur in defense of the SEC action would have been advanced and/or reimbursed by the Fund." (Id. ¶ 6; see also id.¶ 47 ("If RMCI had obtained ...