Jessica M. Karmasek Apr. 25, 2013, 6:30pm

HARTFORD, Conn. (Legal Newsline) -- A federal judge has remanded to a state court Connecticut's lawsuit against The McGraw-Hill Companies Inc. and its subsidiary Standard & Poor's Rating Services, according to a ruling filed late Wednesday.

Judge Stefan R. Underhill for the U.S. District Court for the District of Connecticut granted the state's motion for remand.

The ratings agency had removed the action to the federal court in March.

Underhill said, as a general rule, a case originally filed in state court may only be removed within 30 days after the defendant receives a copy of the initial pleading setting forth the claim for relief.

"Here, there is no dispute that the defendants filed the notice of removal well outside the 30-day period following service of the complaint," the judge wrote in his 13-page ruling.

"Nor is there any dispute that the plaintiff's allegations remain unchanged from March 2010, and that no amended pleading, motion or order otherwise provides a basis for removal.

"Instead, the defendants argue that the Feb. 5, 2013 filing of 13 separate -- albeit substantively similar -- sovereign enforcement actions by different states, under different consumer-protection statutes, in different jurisdictions qualified as 'other paper' triggering a renewed 30-day period for removal under section 1446(b)."

On that basis, the ratings agency contends its removal of the case to the federal court last month was both timely and proper.

Underhill disagreed.

"With few exceptions, the doors to federal court do not swing open merely because a defendant has a national presence or is alleged to have committed wrongdoing that is national in scope," wrote the judge, adding that the case will be remanded to a state superior court, "where it belongs."

In February, the U.S. Department of Justice and a group of 13 states and the District of Columbia filed their suit in the U.S. District Court for the Central District of California. Like Connecticut, they are accusing the ratings agency of fraud.

The 13 states include Arizona, Arkansas, California, Colorado, Delaware, Idaho, Iowa, North Carolina, Maine, Missouri, Pennsylvania, Tennessee and Washington.

The DOJ and the states allege that the ratings agency's misconduct involved structured finance securities backed by subprime mortgages that were at the heart of the nation's financial crisis.

In their suit, the department and the states contend that Standard & Poor's inflated mortgage investment ratings and set them up for a crash.

In particular, they claim that the agency -- from September 2004 through October 2007 -- "knowingly and with the intent to defraud, devised, participated in and executed a scheme to defraud investors" in certain mortgage-related securities.

They also claim Standard & Poor's falsely represented that its ratings were "objective, independent, uninfluenced by any conflicts of interest."

Connecticut sued the credit ratings agency and its parent in March 2010. Its current attorney general, George Jepsen, is now reportedly leading the multistate coalition.

Illinois and Mississippi also filed their own, similar lawsuits against the ratings agency.

Illinois filed its suit against Standard & Poor's last year, while Mississippi Attorney General Jim Hood has had his own consumer protection lawsuit pending against Standard & Poor's, as well as its chief competitor, Moody's Investors Service Inc., since 2011.

The credit ratings agency is currently fighting to consolidate the state lawsuits in federal court. The DOJ and the states want their suits to remain under state jurisdiction.

Jepsen, in a statement released Thursday, said the state was "pleased" with Underhill's decision and said it would begin preparing to litigate the matter in the state court.

"As our complaint alleges, we believe Standard & Poor's took its own financial interests into consideration when rating structured securities and misrepresented that fact to the public," Jepsen said.

"We intend to pursue our claim vigorously as allowed under provisions of the Connecticut Unfair Trade Practices Act."

From Legal Newsline: Reach Jessica Karmasek by email at

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Mississippi Attorney General
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