Conjugal Soc. v. Chicago Title Ins. Co.

• Decision Date: 04 January 1979
• Docket Number: Civ. No. 79-20.
• Citation: 497 F. Supp. 41
• Court: U.S. District Court — District of Puerto Rico
• Parties: The CONJUGAL SOCIETY composed of Pedro Juvenal Rosa and Rosario Amador De Rosa; Pedro Juvenal Rosa and Rosario Amador De Rosa, Individually, Plaintiffs, v. CHICAGO TITLE INSURANCE COMPANY and First Federal Savings & Loan Association of Puerto Rico, Defendants.

497 F. Supp. 41

The CONJUGAL SOCIETY composed of Pedro Juvenal Rosa and Rosario Amador De Rosa; Pedro Juvenal Rosa and Rosario Amador De Rosa, Individually, Plaintiffs, v. CHICAGO TITLE INSURANCE COMPANY and First Federal Savings & Loan Association of Puerto Rico, Defendants.

Civ. No. 79-20.

United States District Court, D. Puerto Rico.

January 4, 1979.

Harry R. Segarra, Santurce, P. R., for plaintiffs.

Ramírez, Segal & Látimer, San Juan, P. R., for First Federal Savings.

McConnell, Valdés, Kelley, Sifre, Griggs & Ruíz-Suria, Hato Rey, P. R., for Chicago Title.

OPINION AND ORDER

PEREZ-GIMENEZ, District Judge.

The jurisdictional question before us arises from an action against Chicago Title Insurance Company (Chicago Title) and First Federal Savings and Loan Association of Puerto Rico (First Federal). Plaintiffs allege that they were the owners of a certain parcel of land within the municipality of Guaynabo, Puerto Rico, which they sold to Torre de Caparra Corporation for a certain sum of which they received part and on the remaining debt there was constituted a first mortgage in favor of plaintiffs. Two further mortgages were constituted by Torre de Caparra Corporation, one in favor of Continental Mortgage Investors and the other in favor of codefendant Chicago Title. The mortgage in favor of Chicago Title was to guarantee, among other things, obligations assumed by Chicago Title, whereby it would finish the apartment building in the event that Torre de Caparra Corporation was unable to do so. In exchange for the mortgage constituted in its favor and as a reciprocal obligation, the codefendant Chicago Title issued a performance bond, which contained a third party beneficiary clause in favor of plaintiffs whereby it guaranteed to the plaintiffs collection of its mortgage credits. Upon the representations of the guarantees by Chicago Title, the plaintiffs subordinated their first mortgage to that of Chicago Title. Codefendant First Federal entered into a refinancing agreement loan with Torre de Caparra Corporation, but as a condition First Federal obtained of the plaintiffs the further subordination of the first mortgage originally held by plaintiff. Subsequently, Chicago Title cancelled the performance bond. Thereafter, the apartment building was not completed, and codefendant First Federal executed its mortgage and acquired for itself the land property. Plaintiffs claim that as a result of a plan to defraud on the part of the defendants, the plaintiffs were deprived of their mortgage credits in the amount of $111,500.00, plus interest, and have suffered losses in the amount of $500,000.00.

The jurisdictional grounds of the complaint filed in this case on January 4, 1979, were:

(a) 12 U.S.C., Sections 1464, et seq., and 28 U.S.C., Sections 1337; and

(b) 28 U.S.C., Section 1332.

Sections 1464, et seq., of Title 12, U.S.C., known as the Home Owners' Loan Act of 1933, as subsequently amended, authorize the establishment of Federal Savings and Loan Associations such as codefendant First Federal. Section 1337 of the Judicial Code grants jurisdiction to the District Court in a civil action "arising under any Act of Congress regulating commerce ...". The other jurisdictional ground invoked by plaintiffs is diversity of citizenship.

On March 27, 1979, codefendant Chicago filed a motion to dismiss for lack of jurisdiction over the subject matter alleging that jurisdiction cannot attach over civil actions by or against a Federal Savings and Loan Association on the sole ground of its Federal incorporation and since plaintiffs do not allege any violation of the provisions of the Home Owners Loan Act nor claim any rights under it or under any other Act of Congress, their jurisdictional claim is actually on the sole ground of codefendant's federal incorporation. As to diversity, Chicago Title contends that codefendant First Federal is located in Puerto Rico for diversity of citizenship purposes having its home office in San Juan, Puerto Rico, thereby defeating complete diversity with plaintiffs who are also citizens of Puerto Rico.

On March 29, 1979, codefendant First Federal joined Chicago Title in the dismissal request. On April 2, 1979, plaintiffs filed a motion and memorandum in opposition to the motion to dismiss and thereafter both defendants and plaintiffs submitted additional legal memoranda on the jurisdictional issues.

On May 3, 1979, plaintiffs moved this Court for leave to file an amended complaint so as to allege an additional jurisdictional ground: 12 U.S.C. § 632. Leave was granted and plaintiffs' amended complaint accepted. Chicago Title responded with supplementary motions to its motion to dismiss alleging that by its own terms said statute is not applicable to Puerto Rico and that therefore it is unavailing to plaintiffs' claim of jurisdiction. First Federal's position varied in that it did not question the applicability of Section 632,¹ only arguing that plaintiffs' claim does not arise from a "banking transaction" within the meaning of Section 632. Thereafter, plaintiffs were allowed to conduct discovery on all the jurisdictional issues raised by the motion to dismiss and eventually filed an additional memorandum of law on the applicability of said statute in Puerto Rico and on the issue of "banking transaction". Both defendants subsequently filed memoranda in reply.

II.

The issue raised by defendants' motions to dismiss as to plaintiffs' first jurisdictional ground is whether plaintiffs' action arises or not under an act regulating commerce under 28 U.S.C. § 1337. In this regard plaintiffs' contention is that their action arises under the Home Owners' Loan Act, 12 U.S.C. § 1464, et seq.

From the face of the complaint it is completely clear that plaintiffs' action does not arise under the Home Owners' Loan Act, nor under any other Act of Congress regulating commerce. Plaintiffs do not claim any right conferred by said Act, nor do they allege any facts that could be considered a violation of any of its provisions or of any other federal statute. In fact, the complaint has nothing to do with federal questions, and hence, there is no need to apply or interpret a federal law in order to decide the merits of this case. The resolution of the case on the merits is really contingent upon a matter of purely local law. Therefore, this Court's purported jurisdiction under 12 U.S.C. § 1464, et seq., and 28 U.S.C. § 1337 may rest solely upon the fact that codefendant First Federal was organized under or pursuant to an Act of Congress.

It is then evident that plaintiffs' first jurisdictional ground must fall since 28 U.S.C. § 1349 expressly forbids jurisdiction being attached on the sole ground of federal incorporation:

"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 than one-half of its capital stock."

Fields v. Community Federal Savings & Loan Association, 37 F.Supp. 367 (D.C.Miss., 1941), was apparently the first case to interpret the predecessor of Section 1349 (Title 28, U.S.C. 1940 Ed., Sec. 42, which was substantially identical to present Section 1349) as it applies to Federal Savings & Loan Associations. Therein the Court considered a suit against a Federal Savings & Loan Association all of whose capital stock was owned by the U.S. Government (the exception in Section 1349), but in doing so the Court incidentally approached the jurisdictional question of federal corporations privately owned. The Court stated:

"The effect of the Act of February 13, 1925, was not to legislate that a proceeding against a federal corporation does not arise under the laws of the United States. (Congress could not exercise judicial power and such a declaration would be an exercise of judicial powers), but was only to remove from the jurisdiction of federal courts such cases arising under the laws of the United States as suits against federal corporations in which the government was not the owner of more than one-half of the capital stock.

"...

"One of the defendants here is a corporation all of whose capital stock is owned by the government. A suit against that corporation, for whatever reason it is sued, is a suit arising under the laws of the United States under the decisions of the Supreme Court. The essence of those decisions is that such a suit arises under the laws of the United States, not because of the character of the suit nor the relief demanded in it, but merely because the defendant sued is a federal corporation. While it is certainly quite plausible to argue that a suit on a contract against a federal corporation is not a suit arising under the laws of the United States since no right conferred by those laws is sought to be enforced and no defense under those laws is sought to be avoided, still the Supreme Court has said it is a suit arising under the laws of the United States and must determine the question so far as this Court is concerned." Fields, supra, at 367 and 368. (emphasis added).

Post Fields, supra, it has become quite clear that after the enactment of the statute of February 13, 1925, now Title 28, U.S.C., Section 1349, federal courts cannot acquire jurisdiction over civil actions by or against a loan association on the sole ground of its federal incorporation. See Elwert v. Pacific First Federal Savings & Loan Association, 138 F.Supp. 395 (D.C.Or. 1956); and Mamber v. Second Federal Savings & Loan Association of Boston, 275 F.Supp. 170 (D.C.Mass., 1967).

To support their jurisdictional claim, plaintiffs invoke Goldman v. First Federal Savings & Loan Association of Wilmette, 377 F.Supp. 883 (N.D.Ill., 1974); Gibson v. First Federal Savings & Loan Association, 347 F.Supp. 560 (E.D.Mich., S.D., 1972), and Murphy v. Colonial Federal Savings & Loan Association, 388 F.2d 609 (2 Cir. 1967).

In those three cases the...