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Ritchie Capital Management, L.L.C. v. Bmo Harris Bank, N.A.

United States District Court, S.D. New York

March 30, 2015

RITCHIE CAPITAL MANAGEMENT, L.L.C., RITCHIE CAPITAL MANAGEMENT, LTD., RITCHIE SPECIAL CREDIT INVESTMENTS, LTD., RHONE HOLDINGS II. LTD., YORKVILLE INVESTMENTS I, LLC, and RITCHIE CAPITAL STRUCTURE ARBITRAGE TRADING, LTD., Plaintiffs,
v.
BMO HARRIS BANK, N.A., as successor to M&I MARSHALL & ILSLEY BANK, Defendant.

OPINION AND ORDER

EDGARDO RAMOS, District Judge.

Ritchie Capital Management, L.L.C., Ritchie Capital Management, Ltd., Ritchie Special Credit Investments, Ltd., Rhone Holdings II. Ltd., Yorkville Investments I, LLC, and Ritchie Capital Structure Arbitrage Trading, Ltd. (collectively, "Plaintiffs") bring suit against BMO Harris Bank, N.A. ("BMO Harris" or "Defendant"), as successor to M&I Marshall & Ilsley Bank ("M&I"). This action, which was originally filed in the Supreme Court of the State of New York, New York County, involves allegations that M&I conspired with Thomas J. Petters ("Petters"), his company Petters Company, Inc. ("PCI"), and others to operate a Ponzi scheme of which Plaintiffs were victims. Plaintiffs allege three state law causes of action against BMO Harris: (1) aiding and abetting Petters' fraud; (2) fraud and misrepresentation; and (3) civil conspiracy. Defendant removed the action to this Court based on federal subject matter jurisdiction under the Edge Act, 12 U.S.C. § 632, and 28 U.S.C. § 1334(b) as "related to" proceedings pending in the United States Bankruptcy Court for the District of Minnesota. Doc. 2.

Pending before the Court are Plaintiffs' motion to remand and Defendant's motion to transfer the action to the United States District Court for the District of Minnesota. Doc. 21, 24, 25. For the reasons set forth below, Plaintiffs' motion to remand is DENIED, and Defendant's motion to transfer is GRANTED.

I. Background

A. Factual Background

The following facts, drawn from the Complaint, are presumed true for the purposes of Plaintiffs' motion to remand. See Fed. Ins. Co. v. Tyco Int'l Ltd., 422 F.Supp.2d 357, 391 (S.D.N.Y. 2006) ("When considering a motion to remand, the district court accepts as true all relevant allegations contained in the complaint and construes all factual ambiguities in favor of the plaintiff." (citations omitted)).

This action stems from a $3 billion Ponzi scheme that Petters and his associates operated from the mid-1990s through the time of his arrest in 2008. Compl. ¶¶ 1, 13. In the course of this scheme, Petters and PCI promised lenders, including Plaintiffs, substantial profits from the sale of electronic goods, which did not actually exist, while recycling lenders' money to pay other lenders as Petters and his cohorts siphoned off tens of millions of dollars in criminal gains. Id. ¶ 1. According to the Complaint, M&I[1] facilitated this criminal conduct by allowing Petters to use its representatives and bank services; M&I had actual knowledge of the fraud and made representations to, and transacted with, certain plaintiffs in furtherance of the scheme. Id. ¶¶ 2; 72.

Plaintiffs-four Cayman Islands companies and two Delaware limited liability companies-made a series of loans to Petters and Petters Group Worldwide, LLC ("PGW") in the aggregate amount of over $150 million. Id. ¶ 3. As relevant to the instant motions, in March 2008, two of the Cayman Islands entities-RCM Ltd. and Ritchie Special Credit Investments, Ltd.-lent $31 million to Petters and PCI to finance the purported purchase of 232, 500 Sony Playstations that were subsequently supposed to have been sold by a company in which Petters had a substantial ownership interest to Costco. Id. ¶ 4. M&I participated in negotiations with Petters, RCM Ltd., and other third parties regarding the establishment of certain bank accounts at M&I for the purpose of depositing the payments from Costco generated from the sale of the Playstations. Id. ¶ 5.

Plaintiffs further allege that in May 2008, M&I, PCI, and RCM Ltd. executed a deposit account control agreement[2] which specifically references RCM Ltd. and Ritchie Special Credit Investments, Ltd.'s agreement to provide financing for the purchase of the Playstations. Id. ¶ 51. The purpose of the deposit account control agreement was to secure PCI's obligations to the two Cayman-based plaintiffs. Id. ¶ 52.

B. Procedural Background

On February 4, 2014, Plaintiffs commenced this action in the Supreme Court of the State of New York, New York County. On March 19, 2014, Defendant removed the action to this Court. Doc. 2. A pre-motion conference was held on May 9, 2014, and Plaintiffs' motion to remand was filed on June 2, 2014. Doc. 21. Defendant's motion to transfer the case to the United States District Court for the District of Minnesota was filed on July 10, 2014. Doc. 25.

C. Other Proceedings

The United States Bankruptcy Court for the District of Minnesota is well-acquainted with the fraud for which Petters has been convicted. Between October 2008 and June 2009, several Petters entities-PCI, PGW, Polaroid, and Petters Capital, LLC-filed for Chapter 11 protection in that court. See In re Petters Co., Inc., No. 08-45257 (Bankr. D. Minn. Oct. 11, 2008); In re Petters Grp. Worldwide, LLC, No. 08-45258 (Bankr. D. Minn. Oct. 11, 2008); In re Polaroid Corp., No. 08-46617 (Bankr. D. Minn. Dec. 18, 2008); In re Petters Capital, LLC, No. 09-43847 (Bankr. D. Minn. June 12, 2009). In each of these bankruptcy cases, trustees have brought adversary proceedings against Plaintiffs, seeking to set aside certain allegedly fraudulent and/or preferential transfers of the debtors' property to Plaintiffs.[3]

In addition to the various matters pending in the Bankruptcy Court in Minnesota, Plaintiffs have filed numerous other actions seeking to recover the losses they incurred through their interactions with Petters. See, e.g., Ritchie Capital Mgmt., L.L.C. v. JPMorgan Chase & Co., No. 14 Civ. 2557 (LGS), 2014 WL 5810629, at *2 (S.D.N.Y. Nov. 10, 2014;) (" RCM L.L.C. ") (denying plaintiffs' motion to remand and sua sponte transferring the action to the United States District Court for the District of Minnesota); Ritchie Capital Mgmt., L.L.C. v. Costco Wholesale Corp., No. 14 Civ. 4819 (S.D.N.Y.) (Broderick, J.) (pending); Ritchie Capital Mgmt., L.L. C. v. Opportunity Fin., L.L.C., 511 B.R. 603 (D. Minn. 2014) (remanding case to Minnesota state court on the basis of mandatory abstention despite a finding of "related to" jurisdiction); Ritchie Capital Mgmt., L.L.C. v. Fredrikson & Byron P.A., 980 F.Supp.2d 1010 (N.D. Ill. 2013) (remanding case to Illinois state court based on lack of diversity); Ritchie Capital Mgmt., L.L.C. v. Jeffries, 849 F.Supp.2d 881 (D. Minn. 2012) (dismissing action against former officers ...


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