Mizuna, Ltd. v. Crossland Federal Sav. Bank

• Decision Date: 25 July 1996
• Docket Number: No. 642,D,642
• Citation: 90 F.3d 650
• Parties: MIZUNA, LTD., Plaintiff-Appellant, v. CROSSLAND FEDERAL SAVINGS BANK, aka Crossland Savings FSB, Defendant, Royal Realty Co., A Partnership, Defendant-Appellee. ocket 95-7242.
• Court: U.S. Court of Appeals — Second Circuit

Page 650

90 F.3d 650

MIZUNA, LTD., Plaintiff-Appellant, v. CROSSLAND FEDERAL SAVINGS BANK, aka Crossland Savings FSB, Defendant Royal Realty Co., A Partnership, Defendant-Appellee.

No. 642, Docket 95-7242.

United States Court of Appeals Second Circuit.

Argued Nov. 29, 1995.

Decided July 25, 1996.

David Arens, New York City, for Plaintiff-Appellant.

Bruce H. Lederman, Lederman, Abrahams & Lederman, Massapequa, N.Y., for Defendant-Appellee.

Before: ALTIMARI, JACOBS and CABRANES, Circuit Judges.

JACOBS, Circuit Judge:

Mizuna, Ltd. (as buyer) and Royal Realty Co. (as seller) signed a detailed, 18-page Purchase Agreement for the sale of commercial condominium units in a Manhattan apartment building. At the contract signing, Mizuna made a $100,000 down payment on the one million dollar purchase price, pursuant to the contract terms. The transaction never closed. Following an exchange of claims alleging breach of the Purchase Agreement, the district court entered summary judgment for Royal, under which Mizuna forfeits its $100,000 down payment. Mizuna appeals, arguing that (i) the district court lost subject matter jurisdiction when the only federal party was dismissed; (ii) there is a material issue of fact as to whether the seller breached a confidentiality term of the contract; and (iii) the seller breached an alleged "oral escrow agreement" that was collateral to the contract.

The contract conditioned the sale on Royal's success in arranging a one million dollar loan to Mizuna from Crossland Federal Savings Bank ("the Bank"). Crossland had financed Royal's participation in the troubled apartment building project, was in workout negotiations with Royal, and presumably would be motivated to assist the Mizuna-Royal transaction. Paragraph 40 of the contract (the "Mortgage Contingency" clause) set out Royal's undertakings regarding the loan:

The obligations of [Mizuna] hereunder are conditioned upon [Royal] obtaining on behalf of [Mizuna] from Crossland Federal Savings Bank ... a written loan commitment in the amount of One Million Dollars ($1,000,000.00) to be secured by a "blanket first mortgage" on the [property] at an interest rate of eight percent (8%) per annum for five (5) years and nine percent (9%) per annum for an additional five (5) years making the total Term ten (10) years. Monthly payments shall be based as if the Loan was Self-Liquidating over a fifteen (15) year term.

Mizuna also wanted the Bank to agree to a "prepayment discount" on Mizuna's total loan payments, if Mizuna paid off the loan in full prior to the end of the ten-year term. The contract, however, made no mention of a prepayment discount. Mizuna thought that the Bank would be more likely to grant the discount if it was kept in the dark about whether or not the discount was built into the contract. Apparently for that reason, supplemental paragraph 1 of the contract created a twelve-day confidentiality period: "[Royal] shall not present this contract to [the Bank] nor communicate any information regarding this contract to said bank until no sooner than [twelve days from the date the contract was signed]."

A week after the contract signing, Mizuna's lawyer spoke by phone with a Bank representative about the possibility of a prepayment discount. According to Mizuna, the Bank representative agreed to grant Mizuna a 15% discount if the loan was prepaid in full within six months. Mizuna then asked Royal to amend the contract's "Mortgage Contingency" provision to specify that the loan would include this 15% discount. Royal refused, and this dispute ensued.

Mizuna claims that the two parties entered into an "oral escrow agreement" on the day the contract was signed, in which Royal agreed (i) to amend the contract if Mizuna secured the prepayment discount from the Bank, and (ii) to cancel the deal if Mizuna did not secure the discount. ¹ Mizuna insists that the contract was thus nothing more than "an interim contract" that was "delivered into escrow" to one of Royal's attorneys pursuant to the oral agreement.

Royal denies that there was any oral agreement, and points to the contract's integration and amendment clauses as proof that the contract was the complete and final expression of the parties' agreement:

23. Other Agreements. This Purchase Agreement super[s]edes any and all understandings and agreements between the parties and constitutes the entire agreement between them and no oral representations or statements shall be considered a part hereof.

24. Amendment of Purchase Agreement. This Purchase Agreement may not be amended, altered or discharged except by agreement in writing signed by the party sought to be charged therewith or by his, her or its duly authorized agent.

After Royal refused to amend the "Mortgage Contingency" clause, Mizuna brought this action against Royal and the Bank in New York state court, seeking (i) a declaration that Royal had breached the "oral escrow agreement," (ii) reformation of the contract to include the mortgage discount provision, (iii) specific performance by Royal on the contract as reformed, and (iv) an injunction staying Royal from enforcing the contract until it was reformed. Concurrently Mizuna filed a lis pendens (a notice that the property is the subject of litigation) with the New York County Clerk's office. The state court issued a temporary restraining order prohibiting Royal from enforcing the contract in its original form.

One month after the restraining order was entered, the Bank--with the FDIC as its recently-appointed Conservator--removed the case as a federal party to the Eastern District of New York (Nickerson, J.), under 12 U.S.C. § 1819(b)(2)(B). Royal (i) counterclaimed, alleging anticipatory breach and demanding the $100,000 down payment as liquidated damages; (ii) moved for summary judgment on its counterclaim; and (iii) moved to vacate the lis pendens. During this time, settlement conferences rolled along, and the original closing date came and went, with Mizuna continuing to insist that the contract was invalid.

After almost one year of settlement conferences, Magistrate Judge Caden (the magistrate judge reassigned to the case) granted Royal's motion to vacate the lis pendens, dissolved the restraining order, and denied Mizuna's request for an injunction. He then scheduled a new closing date, eleven months after the original date, and advised that if Mizuna failed to close on the new date, Mizuna would be in default and Royal's summary judgment motion would be granted. Judge Nickerson adopted this ruling. After Mizuna failed to appear at the closing, Judge Nickerson issued a second order, granting Royal's motion for summary judgment on its counterclaim and dismissing Mizuna's claims. ² This appeal followed. We first confront Mizuna's argument that the district court lacked jurisdiction over the case and then turn to Mizuna's two arguments on the merits.

A. Jurisdiction

Shortly after Magistrate Judge Caden issued his ruling, Mizuna dismissed its claim against the Bank. Several months later after the district court's first order had issued, Mizuna moved to vacate that order and to remand the case to state court, arguing that subject matter jurisdiction, which was founded solely on the Bank's status as a federal party, no longer existed. The district court properly exercised its discretion to deny the motion.

On appeal, Mizuna argues that the post-removal dismissal of all claims against the federal defendant divested the court of jurisdiction to hear the claims against the other defendants. Although Mizuna did not challenge the initial sufficiency of the grounds for removal, we think that that is a prior question that we are obliged to consider. See United Food & Commercial Workers Union, Local 919 v. Centermark Properties Meriden Square, Inc., 30 F.3d 298, 301 (2d Cir.1994).

The district court recited that this case was removed pursuant to 28 U.S.C. § 1442(a)(1) and 12 U.S.C. § 1819(b)(2). Removal jurisdiction is not well founded on 28 U.S.C. § 1442(a)(1)--federal officer removal--because no officer of the United States is named. In any event, the Supreme Court has held that this section does not furnish an independent ground for federal jurisdiction absent some federal question implicated either in the claim or by way of a defense. Mesa v. California, 489 U.S. 121, 136, 109 S.Ct. 959, 968, 103 L.Ed.2d 99 (1989).

The remaining predicate for removal jurisdiction is 12 U.S.C. § 1819(b)(2), which provides for removal solely by virtue of the fact that the FDIC is a party. ³ It is "firmly establish[ed] that Congress may not expand the jurisdiction of the federal courts beyond the bounds established by the Constitution." Verlinden B.V. v. Central Bank of Nigeria, 461 U.S. 480, 491, 103 S.Ct. 1962, 1970, 76 L.Ed.2d 81 (1983). The jurisdictional grant at issue here provides that civil cases in which the FDIC is a party "in any capacity ... shall be deemed to arise under the laws of the United States." 12 U.S.C. § 1819(b)(2)(A). The issue is whether this grant of jurisdiction exceeds the scope of Article III, a question we have not previously addressed. The answer depends upon the nature of the enactment. In Mesa, the Supreme Court considered whether 28 U.S.C. § 1442(a), which provides for removal jurisdiction over any civil or criminal case against (inter alia ) "[a]ny officer of the United States or any agency thereof, or person acting under him, for any act under color of such office," could support the removal to federal court of state prosecutions against United States Postal Service employees for traffic violations committed in the course of their duties. Because that statute "is a pure jurisdictional statute, seeking to do nothing more than grant district court jurisdiction over cases in which a federal officer is a defendant," the Supreme Court concluded that the enactment "cannot independently support Art. III 'arising under' jurisdiction." Mesa, 489 U.S....