The Prudential Insurance Company Of America ET AL. v. J.P. Morgan Securities LLC et al.;
(2:12-cv-03489 U.S. District Court for the District of New Jersey)
In April of 2012, the Prudential Insurance Company of America (the plaintiffs) filed suit against the J.P Morgan Securities, LLC, (the defendants) in New Jersey state court, claiming that the defendants made false statements and other misrepresentations in connection with $523 million in Residential Mortgage-Backed Securities (RMBS) purchased by Prudential between 2005 and 2007. The defendants moved to remove the action to federal court, contending that the federal court had jurisdiction over the claim pursuant to the Edge Act, because the suit involved federally chartered banks and arose out of “international or foreign financial operations” as several of the RMBS were bought by a Prudential entity based in Japan. The defendants also argued that the claim was related to a pending Title 11 bankruptcy proceeding. In response, the plaintiffs filed a motion to remand, arguing that the U.S. District Court of New Jersey did not have subject-matter jurisdiction to hear their claims under either the Edge Act or the bankruptcy jurisdiction. The plaintiffs also requested that the court remand under the permissive abstention provisions of the bankruptcy code.
District Judge William H. Walls granted Prudential’s remand motion finding that Edge Act jurisdiction was not appropriate because the national bank involved, JPMorgan, was not involved in the sale of the RMBS purchased by the Japanese Prudential entity. Thus, Edge Act jurisdiction was not appropriate because there was no connection between the federally charted bank and the banking related activities involving a foreign party.
Judge Walls rejected defendants’ arguments that the federal court had jurisdiction in light of the related bankruptcy. Judge Walls said
The suit before this court involves alleged untrue statements by defendants; it does not involve alleged untrue statements by the bankrupt originators … a lawsuit establishing the bankrupt originators’ liability is not before this court.
Judge Walls also noted that abstention was appropriate because:
- judicial economy did not require that the Federal Court hear the case,
- state law issues predominate the case,
- the complexity if the state law RICO claim and comity considerations favor remand, and
- the case is remote compared to the main bankruptcy cases and the liability of the bankrupt originators are not going to be decided in the instant action.