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Varga v. McGraw Hill Financial, Inc.

United States District Court, S.D. New York

August 4, 2014

GEOFFREY VARGA, et al., Plaintiffs,
v.
MCGRAW HILL FINANCIAL, INC., et al., Defendants

Page 378

For Geoffrey Varga, as Joint Official Liquidators of Bear Stearns High-Grade Structured Credit Strategies (Overseas) Ltd. and Bear Stearns High-Grade Structured Credit Strategies Enhanced Leverage (Overseas) Ltd., Mark Longbottom, as Joint Official Liquidators of Bear Stearns High-Grade Structured Credit Strategies (Overseas) Ltd. and Bear Stearns High-Grade Structured Credit Strategies Enhanced Leverage (Overseas) Ltd., Plaintiffs: Christopher Neil Gray, James Craig McCarroll, Jordan W. Siev, LEAD ATTORNEYS, Reed Smith (NYC), New York, NY.

For McGraw Hill Financial, Inc., formerly known as The McGraw-Hill Companies, Inc., doing business as Standard & Poor Rating Services, Defendant: Ben Adam Schatz, Charles Alan Gilman, Floyd Abrams, Jason Michael Hall, Krista Ann Friedrich, Stacey Gayle Zyzyck, Cahill Gordon & Reindel LLP, New York, NY.

For Moody's Corporation, Moody's Investors Service, Inc., Moody's Investors Service Limited, Defendants: James J. Coster, LEAD ATTORNEY, Glenn Charles Edwards, Joshua M. Rubins, Satterlee Stephens Burke & Burke LLP, New York, NY.

For Fitch Group, Inc., Fitch Ratings, Inc., formerly known as Fitch, Inc., Fitch Ratings Limited, Defendants: Andrew James Ehrlich, Julia Tarver-Mason Wood, Martin Flumenbaum, LEAD ATTORNEYS, Frank David D'Angelo, Paul, Weiss, Rifkind, Wharton & Garrison LLP (NY), New York, NY.

For Standard & Poor's Financial Services LLC, ADR Provider: Charles Alan Gilman, LEAD ATTORNEY, Ben Adam Schatz, Floyd Abrams, Jason Michael Hall, Krista Ann Friedrich, Stacey Gayle Zyzyck, Cahill Gordon & Reindel LLP, New York, NY.

Page 379

ORDER AND OPINION

LORNA G. SCHOFIELD, UNITED STATES DISTRICT JUDGE.

Plaintiffs Geoffrey Varga and Mark Longbottom (" Plaintiffs" ), as Joint Official Liquidators of Bear Stearns High-Grade Structured Credit Strategies (Overseas) Ltd. and Bear Stearns High-Grade Structured Credit Strategies Enhanced Leverage (Overseas) Ltd. (together, the " Overseas Funds" ) seek to remand this action to state court, asserting that this Court lacks subject matter jurisdiction because no substantial federal question is implicated by their state law claim (" Motion" ). For the reasons below, the Motion is granted and the case is remanded to the Supreme Court of the State of New York.

I. BACKGROUND

Plaintiffs allege that the three foremost credit-rating agencies in the United States engaged in widespread fraud by misrepresenting the objectivity and accuracy of their ratings. At issue is whether Plaintiffs' claim of fraud should be adjudicated in New York state court, where it was brought, or in federal court, where the case is currently pending as a result of Defendants' removal pursuant to 28 U.S.C. § § 1441 and 1446.

Defendants are McGraw Hill Financial, Inc. and its subsidiary, Standard & Poor's Financial Services LLC (together, " S& P" ); Moody's Corporation and its subsidiaries, Moody's Investors Service, Inc. and Moody's Investors Service Limited (together, " Moody's" ); and Fitch Group, Inc., and its subsidiaries, Fitch Ratings, Inc. and Fitch Ratings Limited (together,

Page 380

" Fitch" ) (collectively, the " Rating Agencies" or " Defendants" ). Defendants' business involves evaluating the creditworthiness of financial products, and each Rating Agency has developed its own rating scale to accomplish that purpose. S& P and Fitch use a rating scale ranging from " AAA," which represents the highest quality, lowest risk security, to " D," representing the lowest quality, highest risk security. Moody's uses a similar scale, with " Aaa" representing the highest quality, lowest risk security, and " C" representing the lowest quality, highest risk security. The Rating Agencies are compensated under what is commonly known as the " issuer pays" model. Under that model, the Rating Agencies charge the ...


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