Krys v. Klejna

Kenneth M. Krys, as Joint Liquidator of SPhinX Ltd. et al.v. Dennis A Klenjna, J.P. Morgan Chase & Co., Summary Order, 2nd Cir. Case No. 14-3446(L), (July 29, 2016)
The Second Circuit upheld the district court's order dismissal of certain state-law claims against the defendant-appellees, and in doing so, found that the district court was not required to abstain from hearing and deciding the matter under 28 U.S.C. Section 1334(c)(2).
Procedural context:
Appeal of a district court decision to adopt the report of a Special Master to dismiss certain claims brought by the liquidator of Sphinx, Ltd.
The Sphinx liquidators brought claims against the defendants related to alleged improper conduct in transferring funds from Refco LLC to an off-shore Cayman Islands affiliate. The district court found that the plaintiffs lacked standing to bring claims against the defendants because any damages to the plaintiffs were derivative of the harm that occurred to Refco. The district court also dismissed fraud claims against JPMorgan Chase & Co. because the claims were not plead with sufficient particularity. Most interestingly, in reviewing the actions of the district court, the Second Circuit found that the lower court was not bound by mandatory abstention under 28 U.S.C. Section 1334(c)(2) from hearing the case. Plaintiffs argued that the matter should have been heard in the state court and, therefore, the district court should not have exercised jurisdiction over the matter. The Second Circuit, in analyzing the factors the district court considered in connection with its mandatory abstention decision held the that case was too complex and too far developed at the district court to find that the matter could be "timely adjudicated" in state court. Moreover, the Second Circuit found that the Sphinx bankruptcy case was still pending and damages awarded in the present case could effect the administration of the bankruptcy estate.
Present: Rosemary S. Pooler; Peter W. Hall, and Susan L. Carney, Circuit Judges

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