Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—MDPa: Claims Against S&P for Misrepresenting Credit Rating Process Stayed Pending JPML Consideration , (Apr 8, 2013)

By Jody Coultas, J.D.

The federal district court in Harrisburg, Pennsylvania, has stayed a Pennsylvania Unfair Trade Practices and Consumer Protection Law (CPL) claim filed by the state’s attorney general (AG) against The McGraw-Hill Companies, Inc. and Standards & Poor Financial Services, LLC (S&P) (Commonwealth of Pennsylvania v. McGraw-Hill Companies, Inc., April 5, 2013, Conner, C.).

S&P, a wholly owned subsidiary of McGraw-Hill, operates as a credit rating agency for a variety of securities. The AG alleged that issuers of securities pressured S&P to assign inflated credit ratings to certain securities, and misrepresented the independence and objectivity of its credit ratings process in violation of the CPL. S&P and McGraw-Hill moved to stay the case pending consideration by the Judicial Panel on Multidistrict Litigation (JPML) of their motion to transfer the case and other cases for centralized pretrial proceedings. The AG filed a motion to remand the case back to state court.

At the outset, the court noted that it had the power to stay the proceedings pending a challenge to its subject matter jurisdiction. JPML Rule 2.1(d) states that the pendency of a motion before the JPML does not affect or limit any of the district court’s actions, powers, or proceedings. The AG was unable to point to any authority for the argument that district courts had to examine subject matter jurisdiction prior to instituting a stay.

The court held that the AG’s motion to remand and the jurisdictional issues should be considered after the motion to stay. Courts give at least some consideration to a remand motion by making a "preliminary assessment" of the jurisdictional issue to distinguish between easily determinable procedural issues and complex substantive issues. Because the legal issues involved in the motion to remand were novel and complex, the court needed to consider the likelihood of similar jurisdictional issues in other cases subject to the pending transfer motion. The jurisdictional issues will be similar, if not identical, in the other claims brought by state Attorneys General subject to transfer by the JPML.

In order to simplify the issues and to promote judicial economy, the court granted the motion to stay. It would be a waste of judicial resources to proceed with the instant matter when the JPML is considering the consolidation of 17 identical cases. The potential prejudice to the state and the presumably short period of delay was outweighed by the harm that would result if the court did not grant a stay, and by considerations of judicial economy.

The case is No. 1:13-CV-605.

Attorneys: John M. Abel (Pennsylvania Office of Attorney General) for the Commonwealth of Pennsylvania. Adam Nelson Zurofsky (Cahill Gordon & Reindel LLP) for The McGraw-Hill Companies, Inc.

Company: The McGraw-Hill Companies, Inc.; Standard & Poor’s Financial Services, LLC

Cases: StateUnfairTradePractices PennsylvaniaNews