On May 17, Judge Jed S. Rakoff of the United States District Court for the Southern District of New York vacated his earlier "bottom line" summary judgment decision dismissing Dexia NV/SA's (Dexia) suit against J.P. Morgan Chase Bank (J.P. Morgan) and its various affiliates. Dexia alleged fraud, negligent misrepresentation and successor liability claims related to the sale of $774 million in residential mortgage-backed securities. J.P. Morgan had removed the action from state court claiming federal jurisdiction primarily under the Edge Act as well as under the Court's bankruptcy jurisdiction. The Edge Act, a statute enacted in 1919, provides for federal jurisdiction if two conditions are met: (i) an international banking and financial corporation organized under the laws of the United States (an Edge Act corporation) must be a party and (ii) the lawsuit must involve an offshore banking transaction. Although the Court initially denied plaintiffs' motion to remand based on the Edge Act, Judge Rakoff vacated that decision based on a recent Second Circuit decision requiring the offshore banking transaction to be engaged in by the Edge Act corporation. Because J.P. Morgan did not originate the securitized loans or otherwise engage in the foreign banking transactions, the court concluded the Edge Act did not apply, and it could not exercise jurisdiction. Opinion.
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District Court vacates dismissal, remands RMBS suit against J.P. Morgan to state court
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