Conners v. Federal Deposit Ins. Corporation

• Decision Date: 09 July 1941
• Docket Number: No. 1033.,1033.
• Citation: 39 F. Supp. 812
• Parties: CONNERS et al. v. FEDERAL DEPOSIT INS. CORPORATION.
• Court: U.S. District Court — Western District of Pennsylvania

39 F. Supp. 812

CONNERS et al. v. FEDERAL DEPOSIT INS. CORPORATION.

No. 1033.

District Court, E. D. Pennsylvania.

July 9, 1941.

H. P. McFadden, of Bethlehem, Pa., for plaintiff.

Ralph W. Barthold, of Bethlehem, Pa., and Allen S. Olmsted, 2d, of Philadelphia, Pa. (Francis C. Brown, of Washington, D. C., of counsel), for Federal Deposit Ins. Corporation.

KALODNER, District Judge.

This case involves the question of the removal of causes from State to Federal courts.

The facts are as follows:

The original proceeding in this matter was instituted by the substituted trustees of the E. P. Wilbur Trust Company Mortgage Certificate Pool (hereinafter designated as Pool) in the Court of Common Pleas of Northampton County, Pennsylvania, to determine the present owners of the undivided interest in the Pool, the amount of interest of each such participant, and the priorities or subordinations, if any, among participants.

It appears that prior to its closing by the State Secretary of Banking, the E. P. Wilbur Trust Company of Bethlehem, Pennsylvania, maintained the Pool. It had issued and outstanding Series "A" guaranteed certificates (as to principal and interest) in the original face amount of $1,435,600 and Series "B" unguaranteed certificates in the original face amount of $230,300.

Subsequent to the closing of the Trust Company, various payments were made to the certificate holders by the Secretary of Banking, who had taken possession of the institution, and later by the substituted trustees of the Pool, who had been appointed by the Court of Common Pleas of Northampton County.

Among the holders of certificates to whom distributions were made was the Federal Deposit Insurance Corporation, the respondent in the instant proceeding (hereinafter designated as the F. D. I. C.), which held Series "A" certificates in the original face amount of $14,900 and Series "B" certificates in the original face amount of $173,800. All the certificates had been acquired by the F. D. I. C. from the Trust Company, the immediate prior holder and guarantor of Series "A", on November 16, 1935, which was the last day upon which the Trust Company was open for unrestricted banking business.

Subsequent to the proceeding instituted by the substituted trustees of the Pool in the Northampton County Court on January 19, 1940, to determine the ownership, interest, priorities or subordinations, if any, among the participants in the Pool, the State court fixed a hearing for February 6, 1940. At the February 6, 1940, hearing the movants in the instant proceeding, residents of Pennsylvania and holders of Series "A" and Series "B" certificates, filed objections to the participation by the F. D. I. C. in the funds of the Pool upon an equal and unsubordinated basis with the objecting participants and other certificate holders of the same class, on the ground that the F. D. I. C. stood in the shoes, as it were, of the defunct Trust Company, and that the latter, as to the certificates held by it, was subordinated in interest to the rights of the other certificate holders.

On June 6, 1940, during the taking of testimony on the original petition, the movants filed a "Petition Supplemental to Objection to Allow Participation". This supplemental petition stated that the F. D. I. C., being subordinated in interest to other certificate holders, was not entitled to the principal income payments theretofore paid to it, and prayed that the court order the F. D. I. C. to pay over to the trustees of the Pool the sum of $77,933.10 theretofore distributed to it.

Upon the filing of this supplemental petition the F. D. I. C. entered a special appearance in the Northampton County Common Pleas Court and filed a petition for the removal of the action for restitution set forth in the supplemental petition on the ground that it constituted a second cause of action, "separate and distinct" from that asserted by the movants in their original objections at the February 6, 1940, hearing which was concerned with priorities and subordinations in the Pool.

As a result of the F. D. I. C.'s petition for removal the cause was removed to this court, and the movants thereupon filed the instant proceeding to remand back to the State court.

The contentions of the parties in the instant proceeding, briefly summarized, are as follows:

The respondent F. D. I. C. contends that the restitution action embodied in the June 6, 1940 supplemental petition constitutes a "separate and distinct" controversy, removable under the Federal Removal Statute, Section 71, Title 28 U.S.C.A., Section 28 of the Judicial Code.

The movants contend that the restitution proceeding is part and parcel of the administration of the Pool by the court-appointed substituted trustees and not a "separate and distinct" controversy and therefore not removable.

The relevant provisions of the Federal Removal Statute, supra, are as follows: "Any suit of a civil nature, at law or in equity, arising under the Constitution or laws of the United States, or treaties made, or which shall be made, under their authority, of which the district courts of the United States are given original jurisdiction, in any State court, may be removed by the defendant or defendants therein to the district court of the United States for the proper district. Any other suit of a civil nature, at law or in equity, of which the district courts of the United States are given jurisdiction, in any State court, may be removed into the district court of the United States for the proper district by the defendant or defendants therein, being nonresidents of that State. And when in any suit mentioned in this section there shall be a controversy which is wholly between citizens of different States, and which can be fully determined as between them, then either one or more of the defendants actually interested in such controversy may remove said suit into the district court of the United States for the proper district."

An examination of the language of the Act leaves much to be desired on the score of clarity. When a suit wholly involves a Federal question, or where there is a complete diversity of citizenship between the plaintiffs on the one side and the defendants on the other, the problem of removal as provided by the Act is relatively simple. The confusion arises: (a) on the removability of a cause at the instance of only some of the defendants; or (b) on the removability of a portion of a cause.

As to these latter two instances, the language of the Act is not altogether clear. The third sentence of the Act, as quoted above, distinguishes between a "controversy" and a "suit" and provides for the removal of a suit when there is a controversy wholly between citizens of different states, at the instance of "* * * one or more of the defendants actually interested in such controversy * * *" and would therefore seem to cover situation (a) in the diversity of citizenship case. The courts, however, have construed the Act so as to cover both (a) and (b). While the words "separable" and "separate" do not appear in the Act, they have been employed by the courts, and the tests of separability and separateness have frequently been applied in determining removability. Thus we find in Cochran v. Montgomery County, 199 U.S. 260, 271, 26 S.Ct. 58, 61, 50 L. Ed. 182, 4 Ann.Cas. 451, the following statement by Mr. Chief Justice Fuller in discussing the Federal Removal Statute: "Under clause 3, relating to cases of separable controversy, and clause 4, all the defendants need not join." (Emphasis supplied.)

The rule that a "separate and distinct" controversy may be removed or "carved out" by the defendant from a suit before a State court was established by the Supreme Court of the United States in the Pacific Railroad Removal Cases, 115 U.S. 1, 5 S. Ct. 1113, 1124, 29 L.Ed. 319. After ruling that corporations of the United States created by and organized under acts of Congress, like the respondent F. D. I. C. in this case, are entitled as such to remove suits brought against them in the State courts into the federal courts, the Supreme Court said: "Now this controversy, involving these three issues, is a distinct controversy between the company and the city. It may be settled in the same trial with the other appeals, and by a single jury; but the controversy is a distinct and separate one, and is capable of being tried distinctly and separately from the others. * * *" (Emphasis supplied.)

Discussing the Federal Removal Statute and the decision in the Pacific Railroad Removal Cases, the court said in Hammer v. British Type Investors, Inc., D.C., 15 F.Supp. 497, 499: "In a number of decisions, however, the courts have adopted the view that where wholly independent causes of action, some removable and others not removable, are joined in one suit merely to eliminate separate trials, the proceeding is to be regarded as a combination of suits, and each controversy as a `suit' rather than as a separable controversy. The result has been that in such cases the federal court has taken jurisdiction only of the removable causes of action and has remanded the others."

To the same effect was Rogge v. Michael Del Balso, D.C., 15 F.Supp. 499, 501, in which it was stated: "The rule now recognized in this circuit is to sever the causes of action where they are pleaded as separate and distinct causes of action, retaining those that are removable in character and remanding those that are not within the federal jurisdiction."

See also State Improvement-Development Co., v. Leininger, D.C., 226 F. 884; Lucania Societa Italiana Di Navigazione v. United States Shipping Board Emergency Fleet Corporation, D.C., 15 F.2d 568.

The character of the cases dealing with removability is always open to examination to determine whether, ratione materia, the courts of the United States are competent to take jurisdiction, or if the relief sought by the removal is merely incidental; but where...