Allstate Suit Against Citigroup Remanded to State Court

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On March 13, 2012, Judge Richard J. Sullivan of the Southern District of New York remanded a $200 million RMBS suit against Citigroup to state court.  Citigroup asserted federal jurisdiction under the Edge Act, and under the doctrine of “related to” bankruptcy.  Judge Sullivan rejected both arguments.  With respect to the Edge Act, Judge Sullivan concluded that no jurisdiction existed because the one federally-chartered entity defendant was not a party to the one securitization that contained mortgage loans secured by overseas properties.  With respect to the issue of related to bankruptcy jurisdiction, the Court found that defendants could not establish any impact that the outcome of this case could have on the bankruptcy proceedings concerning American Home Mortgage Holdings, Inc. (“AHM”), which had originated some of the loans backing the RMBS, particularly because AHM’s reorganization plan already had been approved and defendants failed to establish that their claim in the AHM bankruptcy is not already fully liquidated.  Order.