Stamm v. Corporation of Lloyds
1996 WL 614087 (S.D.N.Y. 1996)
United States District Court, S.D. New York.
Arthur Allan STAMM, Maureen R. Olivo and Philip M. Stamm, Plaintiffs,
BARCLAYS BANK of NEW YORK, Barclays Bank PLC, and Corporation of Lloyd's, also
known as Society & Council of Lloyd's, doing business as Lloyd's of London,
Council of Lloyd's, Committee of Lloyd's, Sedgwick Lloyd's Underwriting Agents
Ltd., and Syndicates 0317, 0418 and 0421 at Lloyd's of London, Defendants.
No. 96 Civ. 5158 (SAS).
Oct. 24, 1996.
Richard A. De Palma, Mark D. Lebow, Coudert Brothers, New York City, for plaintiffs Arthur Allan Stamm, Maureen R. Olivo and Philip M. Stamm.
John J. Kerr, Jr., Kenneth G. Crowley, Simpson Thacher & Bartlett, New York City, for defendants Barclays Bank PLC and Barclays Bank of New York, N.A.
William A. Meehan, Mendes & Mount, LLP, New York City, for defendants Syndicates 0317, 0418 and 0421 At Lloyds of London.
Steven L. Young, Philip J. Walsh, Wilson, Elser, Moskowitz, Edelman & Dicker, New York City, for defendant Sedgwick Lloyd's Underwriting Agents Ltd.
Lorna M. McKenzie, Lawrence W. Pollack, LeBoeuf, Lamb, Greene & MacRae, New York City, for defendants The Corporation, Council and Society of Lloyd's.
OPINION AND ORDER
SCHEINDLIN, District Judge:
*1 Plaintiffs filed the instant action for common law fraud and violations of Article 22-A of the New York General Business Law [FN1] in New York state court on June 26, 1996. Defendant Lloyd's [FN2] removed the action to this court on July 9, 1996 pursuant to 12 U.S.C. ¤ 632, 9 U.S.C. ¤¤ 203 and 205, 28 U.S.C. ¤ 1331, 28 U.S.C. ¤¤ 1441(a) and (d), and 28 U.S.C. ¤ 1426. Plaintiffs now move to remand to state court, maintaining that this Court lacks subject matter jurisdiction. For the reasons set forth below, plaintiffs' motion is denied.
FN1. N.Y. General Business Law ¤¤ 349 et seq. (McKinney 1988).
FN2. "Lloyd's" refers here to defendants Corporation of Lloyd's, Society and Council of Lloyd's, Committee of Lloyd's, and Lloyd's of London.
I. FACTUAL BACKGROUND
This case arises out of a complex transaction that is described briefly below. Each plaintiff is an underwriting member of Lloyd's of London ("Lloyd's"). See Roby v. Corporation of Lloyd's, 996 F.2d 1353, 1357-8 (2d Cir.1993) (describing Lloyd's as "a market somewhat analogous to the New York Stock Exchange" and detailing its structure). See also In re Lloyd's American Trust Fund Litigation, 928 F.Supp. 333, 335-6 (S.D.N.Y.1996) (also describing in detail the structure of Lloyd's "unique and complex insurance market"). In connection with their membership in Lloyd's, each plaintiff caused an English branch of Barclays Bank PLC ("BBPLC") to issue guarantees to Lloyd's in England to secure the plaintiff's obligations. The BBPLC guarantees are secured by shares of Stamm International Corporation stock (the "collateral"), which plaintiffs originally deposited in New York with Barclays Bank of New York ("BBNY") and which are currently held in New York by BBPLC. If Lloyd's seeks payment in England under the guarantees, BBPLC will be obligated to pay plaintiffs' obligations to Lloyd's. BBPLC may then seek repayment from plaintiffs by drawing on the collateral in New York. See generally Complaint, ¦¦ 51-53.
In response to plaintiffs' motion, defendants argue collectively that this Court should exercise federal question jurisdiction over this case pursuant to 12 U.S.C. ¤ 632 and 9 U.S.C. ¤ 205. Because this Court has federal question jurisdiction over the case pursuant to 12 U.S.C. ¤ 632, I will not address the question of whether jurisdiction may also be exercised under 9 U.S.C. ¤ 205.
On a motion for remand, the party seeking to invoke this Court's jurisdiction bears the burden of showing that the exercise of such jurisdiction is proper. In general, "federal courts construe the removal statute narrowly, resolving any doubts against removability." Somlyo v. J. Lu-Rob Enter., Inc., 932 F.2d 1043, 1045-46 (2d Cir.1991). However, this Court has noted several times before in cases involving 12 U.S.C. ¤ 632 that in considering such motions to remand "the federal court should be cautious about remand, lest it erroneously deprive defendant of the right to a federal forum." Contitrade Services Corp. v. Eddie Bauer, Inc. et al., 794 F.Supp. 514, 516 (S.D.N.Y.1992) (quoting Manas y Piniero v. Chase Manhattan Bank, N.A., 443 F.Supp. 418, 419 (S.D.N.Y.1978)).
*2 A civil action may be removed to federal court under 12 U.S.C. ¤ 632 if it is brought by or against a corporation organized under the laws of the United States, and if any part of the dispute arises out of "transactions involving international or foreign banking" or out of "other international or foreign financial operations." Nationally chartered banks are also entitled to remove actions brought against them to an appropriate district court. See Corporacion Venezolana de Fomento v. Vintero Sales Corp., 629 F.2d 786, 791-792 (2d Cir.1980), cert. denied, 449 U.S. 1080 (1981).
The only real question as to the proper application of ¤ 632 in the case at bar is whether the litigants' dispute arises out of "international or foreign banking" transactions, or alternatively "international or foreign financial operations". This precise issue has recently been decided in a very similar situation. Just a few months ago, Judge Sweet denied a motion to remand for lack of jurisdiction under ¤ 632 in a case arising out of a financial transaction analogous to that raised here. See In re Lloyd's American Trust Fund Litigation, 928 F.Supp. at 333. The dispute in that case arose out of a transaction where Citibank acted as a repository for premiums held in trust as collateral to guarantee payment to Lloyd's policyholders. Although the structure of the financial transactions in that case differs from that presented here, the legal analysis is directly applicable.
First, it is beyond question that the transaction at the heart of this dispute is "international" in nature. Lloyd's and BBPLC are foreign corporations. The agreements executed between plaintiffs and Lloyd's, and the deposit of their collateral with BBNY as security for the BBPLC guarantees, are all part of a larger arrangement that transcended the national boundaries of the United States.
Second, this action arises out of a "banking" transaction. The Second Circuit has held that the issuance of letters of credit is a traditional banking activity that confers jurisdiction under ¤ 632, even if the bank that issued the letters of credit is not a party to the action. Vintero Sales Corp., 629 F.2d at 792. Lloyd's now argues convincingly that "[t]he [g]uarantees issued by Barclays PLC, an English Bank, as security for plaintiffs' underwriting activities at Lloyd's in London, serve the identical banking function as an international letter of credit." Defendant Lloyd's Memorandum in Opposition to Motion to Remand at 8. Even if the transactions are not "identical" as defendants claim, they are so similar as to fit squarely within the rubric of "banking" activities that Congress intended to cover within the scope of ¤ 632.
Finally, this dispute arises out of what might also be characterized as "international financial operations" within the meaning of ¤ 632. As Judge Sweet wrote, the plain meaning of the statutory phrase "other international or foreign financial operations" is international or foreign financial operations other than banking. See In re Lloyd's American Trust Fund Litigation, 928 F.Supp. at 341. Thus, even if the parties' transactions do not constitute "international or foreign banking," they undoubtedly fall into the general statutory category of "financial operations". [FN3]
FN3. See Black's Law Dictionary 568 (5th ed. 1979) (defining
"finance" as "to provide with capital or loan money as needed to carry on business").
*3 Plaintiffs rely primarily on Bata v. Central-Penn Nat'l Bank of Philadelphia, 223 F.Supp. 91, 94 (E.D.Pa.1963), which granted a motion to remand where the bank seeking exercise of jurisdiction under 12 U.S.C. ¤ 632 was found to have no real interest in the outcome of the case. Plaintiffs argue that 12 U.S.C. ¤ 632 does not convey jurisdiction in this case as defendant BBPLC has "no interest in the outcome of the suit" and is rather a "neutral stakeholder". See Plaintiffs' Reply Memorandum of Law in Further Support of Motion to Remand at 3-4. Plaintiffs' reliance on Bata is misplaced. BBPLC and BBNY both claim to have "a very real interest" in the outcome of this case. They argue that BBPLC and BBNY "are exposed to the very real prospect of financial loss in this action" or are "exposed to the very real prospect of being obligated to pay Lloyd's under the [g]uarantees while simultaneously being prevented from reducing the [c]ollateral to value to compensate [themselves] for those payments." See Memorandum of Law of Defendants BBNY and BBPLC in Opposition to Plaintiffs' Motion to Remand at 5. Lloyd's also points to United Technologies Corp. v. Citibank, N.A., 469 F.Supp. 473, 477 (S.D.N.Y.1979), which found that in a similar situation the issuers of international letters of credit were not neutral stakeholders because their reputation as "reliable international banker[s] and [their] continued right to do business [with their customers] are at stake." Finally, Lloyd's also notes that the fact that plaintiffs are seeking injunctive relief against defendants BBNY and BBPLC including costs, interest and attorney's fees weighs against plaintiffs' argument that such defendants are merely neutral stakeholders and as such have no real interest in the outcome of this case. Defendants have sufficient interests at stake in this action to distinguish them from the defendants in Bata.
The instant case falls within the ambit of federal question jurisdiction pursuant to 12 U.S.C. ¤ 632. Because defendants properly removed the action pursuant to that statute, plaintiffs' motion to remand is denied.