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Commonwealth ex rel. Integra REC LLC v. Countrywide Securities Corp.

United States District Court, Eastern District of Virginia, Richmond Division

January 14, 2015

COMMONWEALTH OF VIRGINIA ex rel, INTEGRA REC LLC, Plaintiff,
v.
COUNTRYWIDE SECURITIES CORPORATION, et al., Defendants.

MEMORANDUM OPINION

M. Hannah Lauck, United States District Judge

This matter comes before the Court on the Motion to Transfer and Motion to Stay filed on October 24, 2014 by Countrywide Securities Corp. ("CSC") on behalf of the defendants, (ECF Nos. 15, 17), and the Motion to Remand and Request for Expedited Hearing filed on October 31, 2014 by the Commonwealth of Virginia (ECF No. 42). On January 9, 2015, the Court heard oral argument and these matters are ripe for disposition.

For the reasons that follow, the Court will grant, on a limited basis, CSC's Motion to Stay (ECF No. 17) and will defer ruling on CSC's Motion to Transfer Venue (ECF No. 15) and the Commonwealth's Motion to Remand (ECF No. 42).

I. Procedural and Factual Background

Two other courts and a multijurisdictional panel have matters pending before them that potentially relate to the action removed to this Court. The Complaint at bar alleges misrepresentations in offerings of mortgage-backed securities ("MBS") or residential mortgage-backed securities ("RMBS"). The Court will address these pending matters seriatim.

A. The Virginia Circuit Court Action

On January 24, 2014, Integra REC LLC, a private relator, filed suit in the Circuit Court of the City of Richmond (the "Virginia Circuit Court") under seal against 13 defendants, [1] including CSC. On September 16, 2014, the Commonwealth of Virginia filed a Complaint-in-Intervention to conduct the action itself. On the same date, the Virginia Circuit Court unsealed the case.

The Commonwealth's Complaint alleges violations of the Virginia Fraud Against Taxpayers Act, Va. Code Ann. §§ 8.01-216.1 et seq. (West 2014), as well as common law claims for actual and constructive fraud.[2] The Commonwealth alleges that the defendants made fraudulent representations surrounding the sale of MBS or RMBS certificates backed by pools of mortgages, some of them residential. The Commonwealth contends that the defendants fraudulently misrepresented the quality and risk of the certificates and the mortgages that backed them, causing the Virginia Retirement System ("VRS")[3] to purchase the certificates on false pretenses and to suffer large losses. As to all 13 defendants, the Commonwealth claims that the misrepresentations caused approximately $383.91 million in losses to VRS.

No responsive pleadings have been filed in the Virginia Circuit Court. The parties agreed to extend the responsive pleading deadline to January 20, 2015. No discovery has commenced in the Virginia Circuit Court.

B. Potentially Related MDL Proceeding in California Federal Court

For the past several years in federal and state courts around the country, CSC has defended numerous cases with allegations it claims mirror those in this Court (the "Virginia Federal Court"). Many of these cases were consolidated in 2011 by the United States Judicial Panel on Multidistrict Litigation ("JPML") into a Multi-District Litigation ("MDL"), Case No. 2265. The JPML formed MDL No. 2265 to centralize cases concerning MBS issued or backed by Countrywide Financial Corporation ("CFC") and its related entities, including CSC. In re: Countrywide Fin. Corp. Mortg.-Backed Sec. Litig. 812 F.Supp.2d 1380, 1382 (J.P.M.L. 2011). Judge Mariana R. Pfaelzer has presided over MDL No. 2265 in the Central District of California (the "California Federal Court"). Since the formation of MDL No. 2265, additional cases have been added through the JPML's "tag-along" jurisdiction under 28 U.S.C. § 1407(a).[4] Other cases have been transferred to Judge Pfaelzer's Court in the Central District of California via28U.S.C. § 1404(a).[5]

This Court has reviewed numerous cases in which Judge Pfaelzer has ruled on facts similar to those presented in the case at bar. Those cases cover multiple federal and state statutes, motions to remand, and motions to dismiss. In 2011, Judge Pfaelzer approved a class action lawsuit that CSC contends encompasses 16 of the 22 MBS offerings at issue in this action.[6]

C. Removal to Virginia Federal Court

On October 16, 2014, CSC and four of its affiliates[7] (the "Removing Defendants") removed to this Court, pursuant to 28 U.S.C. § 1452(a), [8] the portion of the Virginia Circuit Court action they say involves every MBS offering issued by CFC and its subsidiaries. Removing Defendants argue that this Court has jurisdiction over the present claims pursuant to 28 U.S.C. § 1334, [9] commonly known as "related to" jurisdiction because of its reliance on relation to a bankruptcy proceeding.[10] Courts find "related to" jurisdiction when an outcome "could conceivably have any effect on [an] estate being administered in bankruptcy." In re Celotex Corp., 124 F.3d 619, 625 (4th Cir. 1997) (citing Pacor, Inc. v. Higgins, 743 ...


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