Overview
In an opinion yesterday, Judge Nathan remanded to state court a dispute among lenders to the Stuy Town residential development because it did not arise under federal law. The plaintiffs are junior lenders who allege that certain senior lenders improperly foreclosed, but the senior lenders claim that there was no excess value for the junior lenders. The dispute as to whether there was excess value or not turns (at least in part) on how a federal post-judgment interest statute, 28 U.S.C. § 1961, applies to the 2010 federal judgment giving rise to the foreclosure. Judge Nathan ruled that the role of § 1961 in the case was not sufficient for federal jurisdiction because it related only to damages, was not essential to any cause of action:
Defendants, effectively, have one theory as to why this case belongs in federal court. They contend that if § 1961 is found not to apply to the June 2010 foreclosure judgment, then "Plaintiffs can recover nothing," Opp. 10, and accordingly "have no case whatsoever." Id. 8. But this is plainly wrong. As explained above, at multiple points in their complaint the Plaintiffs explain that they still stand to recover a very substantial sum of damages even if their interpretation of § 1961 is incorrect. See Compl. ¶¶ 78-83. At various points in their opposition, Defendants attempt to circumvent this problem, but their reasoning is too clever by half. Specifically, Defendants contend that "only if Section 1961 supplied the proper rate of interest from the date of the 2010 Foreclosure Judgment could the value of the Property possibly exceed the amounts owing on the Senior Loan, such that there would be "excess value" in the Property that amounts to over $1 billion." Opp. 15-16 (emphasis added) . . . . The appropriate inquiry is not whether the accuracy of any single allegation in the Plaintiffs' complaint turns upon interpretation of federal law. Whether Plaintiffs alleged damages are greater or less than $1 billion does not resolve whether this Court has jurisdiction over their claims. Rather, the Court must determine whether any single "cause of action here necessarily stands or falls based on a particular interpretation or application of federal law."
