Morgan Stanley Mortgage Capital Inc. v. Insurance Commissioner of the California

Morgan Stanley Mortgage Capital Inc. appeals the dismissal of its diversity action to establish ownership and possession of certain negotiable mortgage notes (“Notes”) issued by two California limited partnerships (collectively the “Signature Partnerships”). Morgan Stanley bought these Notes from the Signature Partnerships pursuant to reverse-repurchase transactions in which the Signature Partnerships agreed to buy back the Notes at a later date. The transactions were described by the California Court of Appeal in a related state action as follows:

Garamendi v. Executive Life Ins. Co., 17 Cal.App.4th 504, 510-11 , 21 Cal.Rptr.2d 578 (2d Dist.1993). When the Signature Partnér-ships failed to repurchase the Notes as promised, Morgan Stanley sued the partnerships and the custodian of the Notes, Security Pacific National Bank, in district court.

Before Morgan Stanley filed its federal action, a state trial court overseeing the insolvency of Executive Life Insurance Company had already asserted in rem jurisdiction over the Notes as assets of separate entities in which Executive Life had a substantial ownership interest. 1 Upon motion of the California Insurance Commissioner, as…