HOME S & L ASS'N v. Samuel T. Isaac & Assoc., Inc.

• Decision Date: 08 September 1980
• Docket Number: No. 79 C 3568.,79 C 3568.
• Citation: 496 F. Supp. 831
• Court: U.S. District Court — Northern District of Illinois
• Parties: HOME SAVINGS AND LOAN ASSOCIATION OF JOLIET, a state savings and loan association, First National Bank of Joliet, a national banking association, First Savings and Loan Association of Will County, a state savings and loan association, Union National Bank and Trust Company, a national banking association, Plainfield Savings and Loan Association, a state savings and loan association, Plainfield National Bank, a national banking association, Plaintiffs, v. SAMUEL T. ISAAC & ASSOCIATES, INC., a corporation; Samuel T. Isaac, individually; Secretary of the Department of Housing and Urban Development; Salem Village III, Inc., a corporation; and Lutheran Social Services of Illinois, a corporation; and Unknown Owners, Defendants.

496 F. Supp. 831

HOME SAVINGS AND LOAN ASSOCIATION OF JOLIET, a state savings and loan association, First National Bank of Joliet, a national banking association, First Savings and Loan Association of Will County, a state savings and loan association, Union National Bank and Trust Company, a national banking association, Plainfield Savings and Loan Association, a state savings and loan association, Plainfield National Bank, a national banking association, Plaintiffs, v. SAMUEL T. ISAAC & ASSOCIATES, INC., a corporation; Samuel T. Isaac, individually; Secretary of the Department of Housing and Urban Development; Salem Village III, Inc., a corporation; and Lutheran Social Services of Illinois, a corporation; and Unknown Owners, Defendants.

No. 79 C 3568.

United States District Court, N. D. Illinois, E. D.

September 8, 1980.

William J. Holloway, Hinshaw, Culbertson, Moelmann, Hoban & Fuller, Chicago, Ill., for plaintiffs.

James White, Asst. U.S. Atty., Chicago, Ill., for Secretary of HUD.

Richard J. Aronson and Robert L. Canel, Chicago, Ill., for Samuel T. Isaac & Associates and Samuel T. Isaac, individually.

Robert A. Knuti, Lord Bissell & Brook, Chicago, Ill., for Lutheran Social Services of Illinois and Salem Village III.

ORDER

BUA, District Judge.

The present action is one for equitable relief, the plaintiffs claiming essentially that they are entitled to reformation of certain Participation Agreements currently in effect between them and defendant Samuel T. Isaac & Associates, Inc. Associates. Said action was filed initially in the Circuit Court of Will County, Illinois, and was timely removed to this court, pursuant to 28 U.S.C. § 1442(a)(1), by the defendant Secretary of Housing and Urban Development HUD or the Department.

The plaintiffs herein are six Illinois commercial banking concerns. In their action, they contend that they were induced to enter into the Participation Agreements at issue because of certain misrepresentations allegedly made by defendant Samuel T. Isaac. Defendant Isaac is a mortgage broker who, while doing business as Samuel T. Isaac & Associates, Inc., arranged for the plaintiff banks to, through him, loan approximately $6,744,500 to defendant Lutheran Social Services of Illinois LSSI or Lutheran for construction of a retirement housing complex, known as Salem Village III, to be operated by Lutheran in Joliet, Illinois. This loan, which was formally made to Salem Village III and secured by a mortgage and note, was to be-and in fact ultimately was-FHA insured. Under an agreement reached pursuant to 12 U.S.C. § 1715z, portions of it also were to be repaid to the mortgagee directly by HUD.

The Participation Agreements under discussion, drawn in connection with the Salem Village III loan, reflect the extent and particulars regarding each of the plaintiffs' involvement in that transaction. Also included in each Agreement are the provisions: (a) that defendant Samuel T. Isaac & Associates, Inc. was to be named as mortgagee in the Salem Village III mortgage and note; and (b) that said mortgage and note, along with all other documents evidencing and securing the same, were to remain in the sole possession of Associates. It is these provisions the plaintiffs seek to have reformed.

Currently pending before the court are the following motions of the parties:

Defendant HUD's motion to dismiss or in the alternative for summary judgment. Rules 12(b)(6) and 56(b), Fed.R.Civ.P.

The plaintiffs' motion for a preliminary injunction and appointment of a Receiver. Rule 65(a), Fed.R.Civ.P.

The court, however, because it believes that removal of this cause was improvidently granted, and because subject matter jurisdiction to hear the matter otherwise is lacking, will not rule upon these motions. Rather, for the reasons stated below, the present action is ordered remanded to the Circuit Court of Will County, Illinois.

Removal of the Cause was Improvidently Granted

As was noted above, the case at bar was filed initially in the Circuit Court of Will County, Illinois, and was timely removed to this court by the defendant Secretary of Housing and Urban Development. Said removal was founded solely upon the provisions of 28 U.S.C. § 1442(a)(1), with no other basis for federal jurisdiction being shown.

28 U.S.C. § 1442(a)(1) provides in relevant part:

(a) A civil action or criminal prosecution commenced in a State court against any of the following persons may be removed by them to the district court of the United States for the district and division embracing the place wherein it is pending:

(1) Any officer of the United States or any agency thereof, or person acting under him, for any act under color of such office ...

Actions of this type encompassed by § 1442(a)(1) can be removed to a federal forum even if it is shown that federal jurisdiction otherwise is lacking. Lindy v. Lynn, 395 F.Supp. 769, 771 (E.D. Pa. 1974), aff'd, 515 F.2d 507 (3d Cir. 1975). If the state suit is one not properly removable under § 1442(a)(1), however, a federal defendant's presence in the matter is essentially immaterial. In situations of this nature, before the case can be heard in federal court, the general requirements for removal set forth in 28 U.S.C. § 1441 ordinarily will have to be satisfied. See Mayberry v. Peninsula Psychiatric Hospitals, Inc., 470 F.Supp. 1268, 1269 (E.D. Tenn. 1979).

In their initial objections to HUD's petition for removal,¹ the plaintiffs in the present matter charged that no claim had ever even arguably been stated against the federal defendant. Rather, they contended, the Department was a purely nominal party to the action, and had been joined as a defendant only because such joinder was required under Illinois law before the banks could properly be granted the equitable relief being sought. See Vial v. Norwich Union Fire Insurance Co., 172 Ill.App. 134, 139-40 (1912), aff'd, 257 Ill. 355, 100 N.E. 929 (1913). Thus, the plaintiffs argued, since no claim had in actuality been made against the Secretary, or even against HUD itself, removal under 28 U.S.C. § 1442(a)(1) was improper.

HUD, in response, relying upon Haggard v. Lancaster, 320 F.Supp. 1252 (N.D. Miss. 1970) and certain dicta in Willingham v. Morgan, 395 U.S. 402, 89 S.Ct. 1813, 23 L.Ed.2d 396 (1969) as authority, contended first that, under 28 U.S.C. § 1442(a)(1), in situations where cognizable federal interests could be significantly affected by the outcome of a pending state proceeding, removal of that action by a defendant federal agency is permissible. After next pointing to its heavy and detailed involvement in the Salem Village III project-primarily in its capacity as the FHA mortgage insurer, the Department then argued that because its overall interest in the present litigation was substantial, and could in part be directly affected by the relief being sought, § 1442(a)(1) removal of the matter was proper.

When this court ruled upon the plaintiffs' objections to removal, HUD's characterization of the present matter, to the extent that it related to how the banks' claims might affect or bear upon the Department's interests, was accepted as correct. Accordingly, because the construction given by HUD to § 1442(a)(1) also was found to have been reasonably accurate, removal of the action was allowed to stand. Later developments in the case, however, the most significant being HUD's motion to dismiss and the arguments made therein, lead the court to now believe that its earlier ruling on the removal question was erroneous.

From the time of its initial enactment, 28 U.S.C. § 1442(a)(1) was intended primarily to afford protection to federal officers and agencies from actions which threatened them with personal liability or civil penalties. The provision was designed essentially to be a vehicle to enable federal defendants, who may have federal defenses to the claims or charges being made against them, to present their defenses in a federal forum. Mayberry v. Peninsula Psychiatric Hospitals, Inc., supra, at 1269; Wilhelm v. United States Department of Air Force, 418 F.Supp. 162, 165 (S.D. Tex. 1976); West v. West, 402 F.Supp. 1189, 1190-91 (N.D. Ga. 1975); State of New Jersey v. Moriarity, 268 F.Supp. 546, 554-61 (D. N.J. 1967). In the case at bar, no claim presently is stated against HUD which would subject either the Secretary or the Department to the threat of personal liability or civil penalties. See Wilhelm v. United States Department of Air Force, supra at 165-66; West v. West, supra at 1191-92; State of New Jersey v. Moriarity, supra at 555-56. That such is true was made quite clear by HUD itself, in the Department's characterization of the plaintiffs' claims in its motion to dismiss. In the banks' complaint, no wrongdoing on the part of the Secretary or the Department is alleged, nor is recovery sought from either entity. Rather, the Department has been joined as a defendant only so that, if the plaintiffs ultimately prevail on the merits, and the Participation Agreements at issue are ordered reformed to direct that the banks be named as mortgagee on the Salem Village III mortgage and note (with said mortgage and note being reformed accordingly), HUD-in its capacity as a 12 U.S.C. § 1715z payor on the note-will be before the court and can be instructed to make future payments in accordance with the terms of the reformed Agreements. Such joinder, at least arguably, was required under Illinois law. See Vial v. Norwich Union Fire Insurance Co., supra at 172 Ill.App. 139-40.

From the face of their complaint, it thus appears that the banks have not stated any claim against HUD which could properly be considered removable under 28 U.S.C. § 1442(a)(1). Mayberry v. Peninsula Psychiatric Hospitals, Inc., supra at 1269; Wilhelm v. United States Department of Air Force, supra at 165-66; West v. West, supra at 1192. To the contrary, from the pleadings it does not appear that any substantial controversy exists between ...