Borzello v. Charles D. Sooy & C. Darrell Sooy

• Decision Date: 24 February 1977
• Docket Number: No. C-76-1865-CBR.,C-76-1865-CBR.
• Parties: Ralph BORZELLO, on behalf of himself and all other persons similarly situated, Plaintiffs, v. CHARLES D. SOOY AND C. DARRELL SOOY, a corporation, et al., Defendants.
• Court: U.S. District Court — Northern District of California

427 F. Supp. 332

Ralph BORZELLO, on behalf of himself and all other persons similarly situated, Plaintiffs, v. CHARLES D. SOOY AND C. DARRELL SOOY, a corporation, et al., Defendants.

No. C-76-1865-CBR.

United States District Court, N. D. California.

February 24, 1977.

David J. Friedenberg, Daly City, Cal., for plaintiffs.

Charles D. Sooy and C. Darrell Sooy Law Corp., San Francisco, Cal., for defendants.

ORDER OF REMAND

RENFREW, District Judge.

This action was originally filed in the Superior Court of California for the County of San Mateo on August 5, 1976, and was promptly removed by defendants to this Court on September 1, 1976. In response to defendants' removal, plaintiffs submitted a motion for remand challenging the existence of federal jurisdiction. That motion was argued before the Court on January 6, 1977. Because there is no federal jurisdiction over the subject matter in the case, it must be remanded to state court.

Plaintiff Borzello brings this action on behalf of himself and a class of persons who had entered into deeds of trust with defendants San Francisco Federal Savings and Loan Association ("S.F. Federal"), as the beneficiary, and Franciscan Financial Corporation ("Franciscan"), as the trustee, to those deeds. Also added as a third defendant is the Charles D. Sooy and C. Darrell Sooy Law Corporation ("Sooy"), who acted as attorneys for the other defendants on matters involving the trust deeds. The deeds served as liens on real property and secured promissory notes executed by the members of the putative class.

The complaint alleges that plaintiffs, who had defaulted on their obligations to S.F. Federal and Franciscan and later cured the default, were billed for unreasonably excessive attorneys' fees for legal services which, purportedly, had been performed by Sooy as a result of the default. Secondly, it alleges that plaintiffs who had sold or transferred their real property security were required to pay unlawful prepayment penalties and an unreasonable reconveyance charge to defendants as a condition to the termination of the deed of trust. Claiming that the assessment of these fees constitutes a breach of contract, a breach of fiduciary duty, and a violation of various California statutes¹ governing deeds of trust and real property agreements, plaintiffs seek to recover damages in the amount of the alleged overcharges as well as punitive damages from defendants.

Despite plaintiffs' reliance on common law and state law claims in their complaint, defendants assert that federal jurisdiction exists both under 28 U.S.C. § 1331(a)² (federal question) and 28 U.S.C. § 1337³ (suits involving commerce regulation). They seek to establish federal jurisdiction on two theories: First, defendants assert that although plaintiffs' complaint on its face does not raise a federal question, if examined closely, the "real nature" of their claim can be seen as involving federal laws because the doctrine of preemption applies to the field of federal savings and loan regulation (Opposition to Motion to Remand pp. 7-11). Secondly, they argue that because S.F. Federal exists as a federally chartered savings and loan association under the Home Owners' Loan Act, 12 U.S.C. § 1461 et seq., as amended, and is engaged in carrying out activities authorized by the Federal Home Loan Bank Board, this suit necessarily arises under the laws of the United States. For the reasons discussed below, neither proposition advanced by defendants is sufficient to confer jurisdiction on a federal court.

The rules for determining whether a controversy "arises under" federal laws, thereby creating federal question jurisdiction, are well established. First, the federal law must be an "essential" element of the plaintiffs' cause of action. Gully v. First National Bank, 299 U.S. 109, 112, 57 S.Ct. 96, 81 L.Ed. 70 (1936). Second, "the controversy must be disclosed upon the face of the complaint, unaided by the answer or by the petition for removal." Gully, supra, at 113, 57 S.Ct. at 98. Third, the federal question may not be inferred from a defense asserted or one expected to be made. Gully, supra, at 113, 57 S.Ct. 96. Fourth, the federal question raised must be a "substantial" one. Hagans v. Levine, 415 U.S. 528, 536, 94 S.Ct. 1372, 1378, 39 L.Ed.2d 577 (1974).

Not one of these four prerequisites for federal question jurisdiction has been met here. In their complaint plaintiffs only rely upon common-law principles of contract and fiduciary duty and certain California statutory provisions. As a result of such pleading, no federal law appears on the face of the complaint and, of course, no "substantial" federal question is raised. While plaintiffs could have pleaded this case challenging the validity of defendants' actions under federal law, they did not do so. Perhaps much of defendants' frustration stems from this fact. But the election to plead a state cause of action and not a federal one is entirely legitimate and does not alter the decision on removability. Pan American Petroleum Corp. v. Superior Court, 366 U.S. 656, 663, 81 S.Ct. 1303, 6 L.Ed.2d 584 (1961).

The Supreme Court recently reaffirmed the validity of these long-standing rules on removal, laid down by Justice Cardozo in Gully, in Phillips Petroleum Co. v. Texaco, Inc., 415 U.S. 125, 127-128, 94 S.Ct. 1002, 39 L.Ed.2d 209 (1974). Yet, defendants contend that this Court should disregard these well-established tests and instead "look beyond the verbiage of the state court complaint to the substance of plaintiffs' claimed grievance, and * * * take judicial notice of any federal laws necessarily brought into play." Rettig v. Arlington Hgts. Fed. Sav. & Loan Ass'n, 405 F.Supp. 819, 823 (N.D.Ill.1975).

Rettig, supra, is the most recent in a line of district court cases suggesting that courts freely examine the "nature of the claim" to determine whether significant federal questions may arise in the course of a suit. This line of cases has been explicitly rejected by the Third Circuit:

"Some courts have carved exceptions to the basic rule where the addition of a party's status alone suffices to make out a federal question or where the plaintiff has concealed the federal nature of his action. The reinforcement of the Tennessee-Gully principle in the 1974 Phillips Petroleum decision persuades us that the inferior federal courts should not attempt to engraft exceptions contrary to the legislative policy so zealously protected by the Supreme Court." La Chemise Lacoste v. Alligator Co., Inc., 506 F.2d 339, 345 (3d Cir. 1974), cert. denied, 421 U.S. 937, 95 S.Ct. 1666, 44 L.Ed.2d 94 (1975).

Given the continually increasing caseload of the federal courts and the pervasiveness of the federal government's involvement in our society, it is essential to construe narrowly the rules in removal cases. To avoid doing so would only further magnify the backlog which now exists in our courts. The central purpose in granting federal question jurisdiction is to provide a federal forum and interpretation in cases which will of necessity turn on the validity, construction or effect of federal laws and not in those cases which will only tangentially touch upon them. Smith v. Grimm, 534 F.2d 1346, 1350 (9 Cir. 1976).

Defendants' suggested approach does nothing to further this underlying rationale. The Court therefore rejects their invitation to go beyond the scope of the complaint in order to find a federal question. The only mention of federal laws comes in defendants' answer to causes of action II, III and IV where they assert the defense of federal preemption to plaintiffs' state law claims. As...