Birbeck v. Southern New England Production Credit

Citation606 F. Supp. 1030
Decision Date29 March 1985
Docket NumberCiv. No. H-84-593.
CourtU.S. District Court — District of Connecticut
PartiesLinda LaChance McRitchie BIRBECK, et al. v. SOUTHERN NEW ENGLAND PRODUCTION CREDIT ASSOCIATION, et al.

COPYRIGHT MATERIAL OMITTED

George Tillinghast, Jr., Sherwood, Tillinghast & Scalise, Glastonbury, Conn., Walter Twachtman, Jr., West Hartford, Conn., for plaintiffs.

Ira H. Goldman, Robert J. Cathcart, Thomas M. Bounty, Theodore M. Space, Shipman & Goodwin, Hartford, Conn., for defendants.

RULING ON DEFENDANTS' MOTION TO DISMISS FOR LACK OF SUBJECT MATTER JURISDICTION

BLUMENFELD, Senior District Judge.

Facts

Plaintiffs' complaint arises as a result of a Settlement Agreement executed by the plaintiffs and the defendants on January 29, 1983. By the express terms of that Agreement, plaintiffs agreed to transfer to defendant Southern New England Production Credit Association ("SNEPCA") real estate and personal property located in Connecticut and Maine. This transfer was made in lieu of foreclosure, by SNEPCA, of a mortgage and other security instruments securing delinquent loans made by SNEPCA to the plaintiffs. The transfer to SNEPCA was made subject to prior security instruments in favor of defendant Federal Land Bank of Springfield ("FLBS") securing additional loans from FLBS to the plaintiffs. As is set forth in the Settlement Agreement, in exchange for plaintiffs' conveyance of their property, the defendants agreed, inter alia, to release the plaintiffs from virtually all deficiency judgment liability on the loans described in the Agreement.

The plaintiffs claim that prior to January 29, 1983, during negotiations between plaintiffs and defendants, the defendants represented to the plaintiffs that the fair market value of the plaintiffs' properties was equal to the indebtedness of the plaintiffs to the defendants as represented by certain notes, mortgages, guarantees, and security agreements that had been executed by the plaintiffs in connection with loan agreements made between the plaintiffs and the respective defendants in January 1980 and May 1982.

While the defendants point to extensive recitations in the Settlement Agreement concerning the arms-length nature of the parties' agreement and their understanding of its terms, the plaintiffs stress that the defendants, and the officers, directors, and employees thereof, occupied positions of faith, trust, and confidence in their relationship with the plaintiffs, and further that the plaintiffs placed explicit faith, trust, and confidence in the representations made by the defendants in reliance upon this fiduciary and confidential relationship and the superior knowledge of the defendants. Complaint, at ¶ 24. It is noteworthy that plaintiff Birbeck and the Levesques were represented by counsel in connection with the transaction. The plaintiff Tatoian is himself an attorney and acted on behalf of the corporate plaintiffs in the transaction, and the plaintiff Thomas J. LaChance chose not to be represented.

Following the execution of the Settlement Agreement and the carrying out of its terms in January and early February of 1983, the defendant SNEPCA was able to find buyers for all of the real estate and personal property by March 21, 1983. The net proceeds received by SNEPCA in exchange for the real estate and personal property that was the subject of the Settlement Agreement exceeded the approximately $3,150,000 indebtedness of the plaintiffs which was released by the terms of the Settlement Agreement by approximately $605,000, or 19% of the total debt.

The complaint seeks to set aside or reform the Settlement Agreement entered into by the parties on January 29, 1983, and to obtain for the plaintiffs either a return of the property transferred to SNEPCA or payment of the excess amount received by the defendants on resale of the property conveyed to SNEPCA, together with other damages. Six grounds are alleged to justify the relief sought in counts claiming the following:

(1) Fraud, misrepresentation and/or a reckless disregard for the truth on the part of the defendants in the course of negotiations of the terms of the Settlement Agreement with the plaintiffs;
(2) Mutual mistake in the negotiation of the agreement;
(3) Taking of plaintiffs' property by FLBS and SNEPCA without just compensation in an abuse of discretion in violation of the Fifth Amendment;
(4) Breach of an alleged fiduciary relationship between the plaintiffs and the defendants;
(5) Unjust enrichment of the defendants at the expense of the plaintiffs; and
(6) That the agreement is "unconscionable, unfair and oppressive," and therefore should be rescinded.

In response to the plaintiffs' complaint, the defendants have moved pursuant to Rule 12(b)(1) of the Federal Rules of Civil Procedure to dismiss the complaint on the ground that this court lacks subject matter jurisdiction over the causes of action alleged. The defendants submit that the plaintiffs' allegations at most constitute state law claims which require them to proceed, if at all, in state court.

Discussion

The question of jurisdiction having been raised by the defendants, it now must be determined whether subject matter jurisdiction properly lies here. If this court lacks subject matter jurisdiction over this action, it will be dismissed. The plaintiffs' allegations of federal jurisdiction in their complaint are the natural points of departure in making the necessary determination.

The first three paragraphs of the complaint allege federal jurisdiction on several bases as follows:

(1) The complaint claims that plaintiffs' rights under the fifth amendment to the United States Constitution have been violated (Complaint, ¶¶ 1, 3). Jurisdiction for these claims is alleged under 28 U.S.C. § 1331.

(2) The complaint claims that its allegations show a violation of the Farm Credit Act of 1933, as amended in 1971, 12 U.S.C. § 2001 et seq., which governs the operation of entities such as SNEPCA and FLBS (Complaint ¶¶ 1 and 158(F)). Jurisdiction for these claims is alleged under 28 U.S.C. § 1331.

(3) The plaintiffs invoke the jurisdiction of this court in counts four and six alleging breach of contract. They generally claim jurisdiction under 28 U.S.C. § 1331 (Complaint ¶ 3). These claims will be treated as allegations of jurisdiction for causes of action which arise under federal common law.

(4) The complaint claims a violation of 42 U.S.C. § 1983, concurrent with a claim to jurisdiction under 28 U.S.C. § 1343 (Complaint ¶ 2).

(5) The plaintiffs generally claim jurisdiction under the Tucker Act, 28 U.S.C. § 1346(a)(2) (Complaint, ¶¶ 1, 3).

In order to determine whether this court has subject matter jurisdiction over the causes of action alleged in the complaint, each of the alleged bases of federal jurisdiction will be examined.

I. Does This Case "Arise Under" The Constitution of the United States?

In paragraphs 1 and 2 of the complaint the plaintiffs allege that this court has jurisdiction under 28 U.S.C. § 1331 because this case "arises under" the fifth amendment to the United States Constitution. A more specific reference to the fifth amendment claim appears in the third count which characterizes the transfers of the plaintiffs' property to the defendants pursuant to the Settlement Agreement as an "appropriation" or "taking" of that property without public necessity, just compensation, or due process of law. Thus the plaintiffs' fifth amendment claim is grounded on the due process clause of the fifth amendment and the doctrine of inverse condemnation.

It is well established that the provisions of the fifth amendment to the Constitution are inhibitions upon the power of government and its agencies rather than upon the freedom of action of private persons. Public Utilities Commission v. Pollak, 343 U.S. 451, 461-62, 72 S.Ct. 813, 820, 96 L.Ed. 1068 (1952) (citing other cases). The initial question, therefore, is whether the defendants here, a Federal Land Bank and a Production Credit Association both existing under and by virtue of the Farm Credit Act of 1933, as amended in 1971, 12 U.S.C. § 2001 et seq., and their agents, servants, employees, officers and directors, are to be considered private entities or governmental agencies sufficient to support a cause of action under the federal due process clause of the fifth amendment. This question has already been resolved by several federal district courts.

In DeLaigle v. Federal Land Bank of Columbia, 568 F.Supp. 1432 (S.D.Ga.1983), the court held that the Federal Land Bank of Columbia was a private corporation without sufficient governmental involvement to support a cause of action under the due process clause of the fifth amendment. The court noted that "even though Federal land banks are `federally chartered instrumentalities of of the United States' pursuant to 12 U.S.C. § 2011 (1976), the Congressional policy behind the Farm Credit Act of 1971, as stated in 12 U.S.C. § 2001, establishes that Congress recognized that the Farm Credit System was to be `farmerowned,' rather than owned by the federal government." Id. at 1439 (footnotes omitted). Additionally, the court concluded that the admittedly heavy regulation of federal land banks does not transform these entities into governmental agencies. Id. See also Federal Land Bank of Columbia v. Cotton, 410 F.Supp. 169, 170 (N.D.Ga.1975). But cf. Schlake v. Beatrice Production Credit Association, 596 F.2d 278, 280-82 (8th Cir.1979).1

It is also important to note that Congress has specifically limited federal court jurisdiction to hear cases based solely on the ground that the action was brought by or against a corporation incorporated by or under an Act of Congress. More specifically, 28 U.S.C. § 1349 provides:

The district courts shall not have jurisdiction of any civil action by or against any corporation upon the ground that it was incorporated by or under an Act of Congress, unless the United States is the owner of more
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