Moeller-Bertram v. Gemini Trust Company, LLC

Background

Tobias Moeller-Bertram filed a proposed class action in New York State Supreme Court against Gemini Trust Company, LLC and Digital Currency Group, Inc. He alleged that the defendants operated the Gemini Earn program, under which retail investors provided crypto assets to Genesis Global Capital, LLC in exchange for interest payments. He claimed that the agreements were securities and that the defendants offered and sold unregistered securities in violation of Sections 5, 12, and 15 of the Securities Act of 1933. He also alleged that Digital Currency Group was liable as a control person for Genesis Global Capital’s alleged violations.

Genesis Global Capital later stopped allowing withdrawals from the program and filed for Chapter 11 bankruptcy protection. Digital Currency Group removed the action to federal court, with Gemini’s consent. Moeller-Bertram moved under 28 U.S.C. § 1447 to remand, meaning to return, the case to state court.

Jurisdictional Issue

The defendants relied on bankruptcy-related jurisdiction under 28 U.S.C. §§ 1334(b) and 1452(a). Section 1334(b) gives federal district courts jurisdiction over civil proceedings that are related to a bankruptcy case. Section 1452(a) allows removal of a claim or cause of action when the district court has that bankruptcy jurisdiction.

The court explained that the defendants could face contribution claims against Genesis Global Capital if they were found liable under the Securities Act. The court also noted that Genesis’s bankruptcy filings identified lenders under certain Gemini Earn agreements as creditors, and that Moeller-Bertram alleged that investors suffered losses when withdrawals were suspended and Genesis entered bankruptcy. The court held that the action therefore had at least a conceivable effect on the bankruptcy estate, which was enough to establish related-to bankruptcy jurisdiction.

Securities Act Removal Restriction

Moeller-Bertram argued that Section 22(a) of the Securities Act barred removal of the case because he asserted federal Securities Act claims rather than state-law claims. The court rejected that argument based on the Second Circuit’s decision in a prior related proceeding, which held that the bankruptcy-removal statute permits removal of Securities Act claims connected to a bankruptcy case despite Section 22(a)’s general removal restriction.

The court concluded that the Second Circuit’s reasoning applied to this proposed class action as well as to an individual action. It also rejected the argument that the Supreme Court’s decision in Cyan, Inc. v. Beaver County Employees Retirement Fund had undermined the Second Circuit’s precedent. According to the court, Cyan addressed the Securities Litigation Uniform Standards Act and state-court jurisdiction over Securities Act class actions, while the Second Circuit’s decision separately addressed the conflict between the Securities Act’s removal restriction and the bankruptcy-removal statute.

Disposition

Judge Lewis J. Liman denied Moeller-Bertram’s motion to remand. The court held that the case was properly removable under the bankruptcy-removal statute because it was related to Genesis Global Capital’s bankruptcy. The court did not reach the defendants’ alternative argument that removal was proper under the Class Action Fairness Act. The Clerk of Court was directed to close Docket No. 23.