Michigan Sav. & Loan League v. Francis

• Decision Date: 08 May 1980
• Docket Number: Civ. No. 872527.
• Parties: MICHIGAN SAVINGS AND LOAN LEAGUE, a Michigan Corporation, et al., Plaintiffs, v. Richard J. FRANCIS, as Commissioner of the Michigan Financial Institutions Bureau of the Department of Commerce of the State of Michigan, et al., Defendants.
• Court: U.S. District Court — Western District of Michigan

490 F. Supp. 892

MICHIGAN SAVINGS AND LOAN LEAGUE, a Michigan Corporation, et al., Plaintiffs, v. Richard J. FRANCIS, as Commissioner of the Michigan Financial Institutions Bureau of the Department of Commerce of the State of Michigan, et al., Defendants.

Civ. No. 872527.

United States District Court, E. D. Michigan, S. D.

May 8, 1980.

Fred J. Fechheimer, Dykema, Gossett, Spencer, Goodnow, Trigg, Troy, Mich., for plaintiffs.

Robert Ianni, Asst. Atty. Gen., Lansing, Mich., John E. Gunther, Washington, D.C., for defendants.

MEMORANDUM OPINION

DeMASCIO, District Judge.

The plaintiffs, a group of federally chartered savings and loan associations, and the Michigan Savings and Loan League (League), their trade association, filed this suit for a declaratory judgment that they are exempt from the provisions of the Michigan Mortgage Lending Practices Act (the Act), M.C.L.A. § 445.1601 et seq., Michigan's anti-redlining statute. The Act prohibits "credit granting institutions" from discriminating against borrowers on the basis of "racial or ethnic characteristics or trends in the neighborhood in which the real estate is located." M.C.L.A. § 445.1602(1)(a). The Act further provides that when a mortgage loan is rejected, the lending institution must furnish the disappointed borrower with a written statement of the reasons for the rejection. M.C.L.A. § 445.1602(2)(5).

The plaintiffs joined as defendants, Richard J. Francis, Commissioner of the Michigan Financial Institutions Bureau and the Federal Home Loan Bank Board (Bank Board), a federal agency created to enforce the regulatory provisions it promulgates pursuant to the Home Owners' Loan Act of 1933 (HOLA), 12 U.S.C. § 1461 et seq. The plaintiffs allege that, although they are required to comply with all relevant federal statutes and the non-discrimination in lending regulations promulgated by the defendant Bank Board, the defendant Commissioner did announce that plaintiffs must conform their lending practices to the Act. Complaint ¶¶ 6, 7. Contending that they are exempt from the provisions of the Act, the plaintiffs seek to enjoin the defendant Commissioner from regulating, controlling and supervising their lending practices. The plaintiffs allege that this court has jurisdiction pursuant to 28 U.S.C. § 1331 and § 1337 (1976), in that this action arises under the laws of the United States. Complaint ¶ 5.

The defendant Bank Board's answer to plaintiffs' complaint admits the jurisdictional allegations as well as all of the general allegations. The Bank Board then filed a cross claim against the defendant Commissioner, praying for the same relief as the plaintiffs. Answer at 1-2, 8. The defendant Commissioner's answer to the complaint also admits the jurisdictional averments, except that he denies that the amount in controversy is $10,000 for each plaintiff. Answer ¶ 2. The Commissioner further denies that the Bank Board is an indispensable party, contending that plaintiffs' action against the Bank Board "is apparently contrived as no relief is sought against the Board." Defendant's brief in opposition to plaintiffs' and cross claimant's motions for preliminary injunction at 2. Some months later, the defendant Commissioner filed a cross claim praying for a declaratory judgment that plaintiffs are not exempt from the Act and an injunctive order restraining the Bank Board from advising federally chartered savings and loan associations not to comply with the Act.

We have under consideration, the plaintiffs' and cross claimant's motions to preliminarily enjoin the enforcement of the Act and their motions for summary judgment. The plaintiffs point out that the Act requires all "credit granting institutions" to maintain detailed records, file reports, post notices, inform all persons making loan inquiries to file complaints concerning redlining with the defendant Commissioner. The Commissioner is authorized to enforce the Act by imposing fines. The plaintiffs contend that it is impermissibly burdensome to require them to comply with both the state and the federal regulatory schemes and that the application of the Act to federally regulated institutions would create a direct conflict in enforcement and disclosure. Brief in support of motion for preliminary injunction at 25-8. In this regard, plaintiffs point out that the need for national uniformity in lending practices among federally chartered institutions requires that federal institutions comply with only one regulatory scheme. They argue that the federal regulatory scheme is so pervasive it preempts the state law and regulations.¹

Although the parties have agreed that the court has subject matter jurisdiction pursuant to 28 U.S.C. § 1331 and § 1337 (1976), which provides for federal jurisdiction in cases "arising under" the laws of the United States, the court still has the obligation to determine that there is indeed subject matter jurisdiction before proceeding to the merits of this case. See City of Kenosha v. Bruno, 412 U.S. 507, 511, 93 S.Ct. 2222, 2225, 37 L.Ed.2d 109 (1973). Cf. Sosna v. Iowa, 419 U.S. 393, 398, 95 S.Ct. 553, 556, 42 L.Ed.2d 532 (1975) (parties may not stipulate to invoke the judicial power of the United States). In Louisville and Nashville Railroad Company v. Mottley, 211 U.S. 149, 152, 29 S.Ct. 42, 43, 53 L.Ed. 126 (1908), the Court held that there was no federal question jurisdiction over a complaint that alleged only that the federal constitution would pose a likely defense to a cause of action arising under state law. In Gully v. First National Bank, 299 U.S. 109, 57 S.Ct. 96, 81 L.Ed. 70 (1936), the state tax collector brought suit in state court for taxes allegedly owed by defendant's predecessor. In its removal petition, the defendant contended that the action arose under the laws of the United States, since any authority to tax a federal bank stemmed from an act of Congress authorizing such taxing power. The Court held that there was no federal question jurisdiction under those facts, since the obligation out of which the controversy actually arose was a creation of state and not federal law. The federal law was only "lurking in the background." Id. at 117, 57 S.Ct. at 99. The court stated:

To bring a case within the federal question statute, a right or immunity created by the constitution or laws of the United States must be an element, and an essential one, of the plaintiff's cause of action. 299 U.S. 112, 57 S.Ct. at 97.

The Court reasoned:

Not every question of federal law emerging in a suit is proof that a federal law is the basis of the suit. The tax here in controversy if valid as a tax at all, was imposed under the authority of a statute of Mississippi. The federal law did not attempt to impose it or to confer upon the tax collector authority to sue for it. True, the tax, though assessed through the action of the state, must be consistent with the federal statute consenting, subject to restrictions, that such assessments may be made. Id. at 115, 57 S.Ct. at 99.

This reasoning applies to this case as well. The actual controversy involved here is the application of a state statute and state regulations to the plaintiff associations. The plaintiffs contend that the Act is not applicable to federally chartered associations, while the defendant Commissioner contends that it is. This is the real controversy, and it does not contain the essential element of a federal question. There is no federal jurisdiction unless there is a controversy involving a federal statute, a treaty, or a right created by the constitution. The element that is essential is not a claim implicating federal law, but a claim under federal law. Gully v. First National Bank, 299 U.S. at 112, 57 S.Ct. at 97. It probably would be more descriptive to designate "federal question" jurisdiction as "federal claim" jurisdiction. See Mishkin, The Federal "Question" in the District Courts, 53 Colum.L.Rev. 157, 171 (1953). There is no controversy over the applicability of the federal regulations. Federal law arises in this case only as a preemption defense raised by the plaintiffs to the enforcement of the Act, which is the real controversy. Indeed, it is only through the Declaratory Judgment Act, 28 U.S.C. § 2201 (1976), that the plaintiffs have been able to bring this action at all. However, 28 U.S.C. § 2201 provides that in the case of an "actual controversy within its jurisdiction," a federal court may declare the rights of any interested party. It is well settled that § 2201 does not confer or expand federal court jurisdiction. See Delavigne v. Delavigne, 530 F.2d 598, 601 (4th Cir. 1976); Skelly Oil Company v. Phillips Petroleum Co., 339 U.S. 667, 70 S.Ct. 876, 94 L.Ed. 1194 (1950). For this reason, a court must examine carefully any action for declaratory judgment. The actual controversy between the parties must remain the focal point for determining jurisdiction and in this case, that controversy is one involving state law. The plaintiffs make this clear by alleging that "this action arises out of a dispute between each and every plaintiff, on the one hand, and defendant Francis on the other hand, as to whether or not defendant Francis . . has the power, duty and authority to regulate, control and supervise federal savings and loan associations . . .." Complaint ¶ 7. The mere fact that a federal defense may be "lurking in the background" of plaintiffs' complaint is not sufficient to confer federal question jurisdiction.

In Home Federal Savings and Loan Association of Algona v. Insurance Department of Iowa, 571 F.2d 423 (8th Cir. 1978), the court reached a similar conclusion on similar facts. In that case, the plaintiff sought declaratory and injunctive relief, claiming that federal law preempted Iowa law, which prohibited a tie-in arrangement between plaintiff's extension of credit and the sale of insurance. The court viewed the actual controversy as one arising under state law, with the federal...