Ritchie Capital Management, L.L.C. v. BMO Harris Bank, N.A.
2017 U.S. App. LEXIS 15596
| 8th Cir. | 2017Background
- Petters’s Ponzi scheme caused PCI funds to flow through M&I Bank accounts, masking fraudulent activity from 2001 to 2008.
- Ritchie loaned PCI/Petters approximately $150 million, including $31 million for a bulk Sony PlayStation order, with an account-control arrangement through M&I.
- PCI bankruptcy followed Petters’s collapse, and the PCI Trustee sued Ritchie and BMO in bankruptcy court alleging fraud and conspiracy claims tied to M&I’s role.
- Ritchie filed a New York suit against BMO asserting fraud, misrepresentation, aiding and abetting fraud, and civil conspiracy; BMO removed and moved to dismiss or abstain.
- The district court abstained due to substantial overlap with the bankruptcy proceedings and dismissed the action, despite a later settlement in the Trustee's adversary proceeding.
- On appeal, the court affirmed abstention but vacated the dismissal and remanded to stay the action, noting stay was preferable to dismissal.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether abstention was proper as duplicative proceedings | Ritchie argues no duplicative overlap compelled abstention | BMO contends duplicative proceedings warrant abstention under Colo. River | Abstention proper; proceedings duplicative under Colo. River framework |
| Whether the district court should have stayed rather than dismissed | Ritchie contends stay is sufficient to preserve claims | BMO asserts dismissal was permissible | Court should have stayed, not dismissed, damages claims |
| Whether the Trustee’s and Ritchie’s interests were sufficiently aligned to justify abstention | Ritchie maintains Trustee interests are not fully aligned with its claims | BMO argues alignment justifies abstention due to common conduct claims | Interests sufficiently aligned to support abstention |
Key Cases Cited
- Colo. River Water Conservation Dist. v. United States, 424 U.S. 800 (1976) (duplicative federal proceedings may warrant abstention to conserve resources)
- Ritchie Capital Mgmt., L.L.C. v. Jeffries, 653 F.3d 755 (8th Cir. 2011) (overlap and duplicative issues justify abstention in federal proceedings)
- United States v. Rice, 605 F.3d 473 (8th Cir. 2010) (concurrent federal proceedings use a flexible duplicative standard)
- Quackenbush v. Allstate Ins. Co., 517 U.S. 706 (1996) (stay preferred over dismissal in abstention when monetary damages are sought)
- Yamaha Motor Corp., U.S.A. v. Stroud, 179 F.3d 598 (8th Cir. 1999) (avoid dismissal in abstention where damages are sought and a stay preserves claims)
- Wilton v. Seven Falls Co., 515 U.S. 277 (1995) (federal abstention prudential limits in procedural posture)
- Cedar Rapids Cellular Tel., L.P. v. Miller, 280 F.3d 874 (8th Cir. 2002) (stay preferred in abstention even when justifications exist)