• May 29, 2012

The seemingly endless Petters litigation saga continues. In February, Minnesota Litigator reported that the litigious hedge fund Ritchie Capital Management  sued Fredrickson & Byron and attorney Simon Root for, among other things, violations of the RICO Act, fraud and tortuous interference for allegedly failing to formalize security interest in Tom Petters’ wholly owned company, Polaroid Corporation.

Recently, U.S. District Court Judge Ann Montgomery (D. Minn.) dismissed Ritchie Capital’s complaint based on abstention grounds but did not address the complaint on substantive grounds.

Judge Montgomery abstained from hearing the case because there was duplicative litigation pending in another federal court  – using what is otherwise known as the Colorado River abstention. The Judge further relied on her previous reasoning in Ritchie Capital Management v. Jeffries, which coincidentally was dismissed on same day the Fredrickson suit was filed.

Under the Colorado River abstention doctrine, federal courts have the discretion to avoid hearing cases where there is duplicative litigation that raises identical issues pending in different federal courts. In determining whether to abstain from hearing a case, courts use a series of equitable factors such as conservation of judicial resources, comprehensive disposition of litigation, relative progress of each case, timing and purpose of each suit, and adequacy of the forum.

Unfortunately for Ritchie Capital, but perhaps lucky for the strain on our judicial system, Judge Montgomery held that the equitable abstention factors pointed towards abstention; she then dismissed the case without prejudice until Ritchie Capital Management’s security interests in Polaroid were fully adjudicated by the bankruptcy court proceedings. Once (and if) that litigation is fully resolved, it will be interesting to see how Ritchie Capital Management, and other victims of the Petters fraud, attempt to make themselves whole.


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