Corestates Trust Fee Litigation, In re

• Decision Date: 27 October 1994
• Docket Number: No. 93-2039,93-2039
• Citation: 39 F.3d 61
• Parties: In re CORESTATES TRUST FEE LITIGATION. Cornelia Todd Harrison BYRD; Howard W. Harrison, III Individually and on behalf of all others similarly situated v. CORESTATES BANK, N.A. Howard W. Harrison, III and James D. Robins * , Appellants.
• Court: U.S. Court of Appeals — Third Circuit

Page 61

39 F.3d 61

63 USLW 2279

In re CORESTATES TRUST FEE LITIGATION.

Cornelia Todd Harrison BYRD; Howard W. Harrison, III Individually and on behalf of all others similarly situated v. CORESTATES BANK, N.A. Howard W. Harrison, III and James D.

Robins ^*, Appellants.

No. 93-2039.

United States Court of Appeals, Third Circuit.

Argued May 20, 1994.

Decided Oct. 27, 1994.

Marguerite R. Goodman, Wynnewood, PA (argued), for appellants.

Gregory M. Harvey (argued) and Karen Pieslak Pohlmann, Morgan, Lewis & Bockius, Philadelphia, PA, for appellee.

Before: BECKER, LEWIS, Circuit Judges and IRENAS, District Judge ^**.

OPINION OF THE COURT

BECKER, Circuit Judge.

Plaintiffs Howard W. Harrison, III and James D. Robins, beneficiaries of fiduciary accounts administered by defendant Corestates Bank, N.A. ("Corestates"), commenced this action in the District Court for the Eastern District of Pennsylvania on their own behalf and on behalf of all those similarly situated. Plaintiffs allege breach of contract and fiduciary duty by Corestates and correspondingly seek refund of allegedly unreasonable trust fees and removal of Corestates as trustee. Jurisdiction was premised on both diversity of citizenship, 28 U.S.C. Sec. 1332, and the putative existence of a federal question based upon violations of the banking laws, 12 U.S.C. Sec. 92a and applicable regulations.

The district court dismissed the diversity claim for lack of subject matter jurisdiction, Fed.R.Civ.P. 12(b)(1), concluding that neither the plaintiffs' claim for punitive damages nor their allegation that the defendants had mismanaged a trust res worth more than $50,000 sufficiently augmented their otherwise minimal claims to satisfy the amount in controversy requirement of the diversity statute. The court dismissed the federal statutory claim, concluding that no private right of action exists for violations of 12 U.S.C. Sec. 92a. The plaintiffs appealed the district court's order of dismissal, but we agree with the district court in both respects, and hence we will affirm.

I. FACTS AND PROCEDURAL HISTORY

Corestates functions as a trustee for a multitude of trusts, managing and investing principal and/or income in exchange for fees. In order to maximize the return on the trust funds, Corestates "sweeps" the fiduciary accounts on a daily basis; "sweeping" refers to the automated collection of idle cash from customer accounts for purposes of temporary collective investment. Corestates transfers the uninvested cash from each account to a temporary collective investment fund. At relevant times, Corestates has charged sweep fees of 60 basis points ($.60 for every $100 of invested cash) for the "service" of sweeping. App. at 33a. In addition, Corestates has imposed an annual regulatory compliance charge of $600 for trusts with principal in excess of $50,000 ($300 for those with less than $50,000 of principal). App. at 19a.

The plaintiffs are beneficiaries of trusts administered by Corestates which are subject to these fees. They allege that Corestate's imposition of the fees constitutes a breach of contract and a breach of fiduciary duty under applicable Pennsylvania law. More specifically, plaintiffs allege Corestates has violated 20 Pa.Cons.Stat.Ann. Sec. 7315.1(b), which permits a Pennsylvania fiduciary to make only a "reasonable charge for services rendered in making [a] temporary investment." Harrison seeks compensatory damages of $2,474.88 ($1,874.88 of sweep fees plus the $600 regulatory compliance fee). Robins seeks compensatory damages of $713.97 ($113.97 of sweep fees plus the $600 regulatory compliance fee). App. at 45a. Because these amounts are far less than the $50,000 required for diversity jurisdiction, plaintiffs assert that the jurisdictional amount is achieved either (1) via their claim for punitive damages; and/or (2) because the value of the trust res, which they allege the trustees have been mismanaging, exceeds the jurisdictional amount. Although plaintiffs have also brought this action "on behalf of all those similarly situated," they have not sought (and therefore have not obtained) class action certification.

In addition, plaintiffs contend that Corestates' imposition of the above mentioned fees constitutes a violation of regulations promulgated pursuant to 12 U.S.C. Sec. 92a. More specifically, plaintiffs contend that a federal private right of action exists for Corestates' alleged regulatory violations. As we have noted, the district court was unpersuaded by both of plaintiffs' theories, and dismissed the case. This appeal followed.

The existence vel non of subject matter jurisdiction is a legal issue over which we exercise plenary review. York Bank & Trust Co. v. Federal Savings & Loan Ins. Corp., 851 F.2d 637, 638 (3d Cir.1988), cert. denied, 488 U.S. 1005, 109 S.Ct. 785, 102 L.Ed.2d 777 (1989). So is the existence of a private right of action. See Unger v. National Residents Matching Program, 928 F.2d 1392, 1394 (3d Cir.1991). In making these legal determinations, all facts alleged in the complaint and all reasonable inferences that can be drawn from them must be accepted as true. See Markowitz v. Northeast Land Co., 906 F.2d 100, 103 (3d Cir.1990).

II. JURISDICTIONAL AMOUNT

Diversity jurisdiction requires an amount in controversy exclusive of interest and costs in excess of $50,000. 28 U.S.C Sec. 1332(a). In determining whether the jurisdictional amount has been properly alleged:

[T]he sum claimed by the plaintiff controls if the claim is apparently made in good faith. It must appear to a legal certainty that the claim is really for less than the jurisdictional amount to justify dismissal.... But if, from the face of the pleadings, it is apparent, to a legal certainty, that the plaintiff cannot recover the amount claimed, or if, from the proofs, the court is satisfied to a like certainty that the plaintiff never was entitled to recover that amount, and that his claim was therefore colorable for the purpose of conferring jurisdiction, the suit will be dismissed.

St. Paul Mercury Indemnity Co. v. Red Cab Co., 303 U.S. 283, 288-89, 58 S.Ct. 586, 590, 82 L.Ed. 845 (1938) (citations omitted). Even in diversity-based class actions, the Supreme Court has held that class members may not aggregate their claims in order to reach the requisite amount in controversy, Snyder v. Harris, 394 U.S. 332, 338, 89 S.Ct. 1053, 1057, 22 L.Ed.2d 319 (1969), and that each member of the class must claim at least the jurisdictional amount, Zahn v. International Paper Co., 414 U.S. 291, 301, 94 S.Ct. 505, 512, 38 L.Ed.2d 511 (1973). A fortiori, the plaintiffs may not aggregate their claims in an action pursued on behalf of "those similarly situated."

A. Punitive Damages

Whether a sufficient amount in controversy exists to establish federal diversity jurisdiction depends, in part, on whether punitive damages are recoverable under Pennsylvania law. Unfortunately, we lack the benefit of direct guidance from the Pennsylvania Supreme Court in this area. Therefore this court must attempt to "predict the position which that court would take in resolving this dispute." Robertson v. Allied Signal, Inc., 914 F.2d 360, 364 (3d Cir.1990).

In Packard v. Provident Nat'l Bank, 994 F.2d 1039 (3d Cir.1993), cert. denied, --- U.S. ----, 114 S.Ct. 440, 126 L.Ed.2d 373 (1993), we were presented with the identical question of Pennsylvania law--whether the imposition of unreasonable sweep fees by a bank acting as a trustee can result in the imposition of punitive damages. The district court in Packard found that sweep fees, imposed at a lower rate then presented here, were unreasonable and in violation of applicable Pennsylvania laws, grounding diversity jurisdiction on an award of punitive damages in the amount of $75,000. Upp v. Mellon Bank, N.A., 799 F.Supp. 540 (E.D.Pa.1992). On appeal, predicting what the Pennsylvania Supreme Court would do, we concluded that "punitive damages simply cannot be recovered against a trustee under Pennsylvania law." Packard, 994 F.2d at 1048. We are bound by the holding of this previous panel "in the absence of a clear statement by the Pennsylvania Supreme Court to the contrary or other persuasive evidence of a change in Pennsylvania law." Smith v. Calgon Carbon Corp., 917 F.2d 1338, 1343 (3d Cir.1990), cert. denied, 499 U.S. 966, 111 S.Ct. 1597, 113 L.Ed.2d 660 (1991); see also Third Circuit Internal Operating Procedure 9.1 (requiring that no subsequent panel of this court overrule the holding of a prior panel contained in a published opinion so as to avoid an intra-circuit conflict of precedent).

The Pennsylvania Supreme Court has not addressed the issue since that time (nor has the Pennsylvania Superior Court). Calgon does not allow us to examine this issue anew, but instead requires us to determine whether opinions of inferior state courts subsequent to Packard represent persuasive evidence of a change in Pennsylvania law. In determining that punitive damages were not available, the Packard court relied in part on Freedman Estate, 1 Fid.Rep.2d 60 (O.C. Allegheny Cty.1980) (en banc), which held that punitive damages were not available against a trustee. Plaintiffs contend that two later trial court opinions--Lemke Trust 13 Fid.Rep.2d 328 (O.C. Dauphin Cty.1993) and Korman Corp. v. Franklin Town Corp., 34 D. & C.3d 495 (C.C.P.Phila.Cty.1984) (both holding, contrary to the opinion in Freedman Estate, that punitive damages were available against a trustee)--which were not considered by Packard ¹ constitute persuasive evidence of a change in Pennsylvania law.

We find that these cases do not represent a change in Pennsylvania law, and certainly not a sufficient evidence of a change to satisfy Calgon. See Calgon, 917 F.2d at 1343. In Calgon this court refused to overrule a prior panel's prediction that the employment-at-will doctrine existed in Pennsylvania notwithstanding two subsequent direct statements to the contrary by members...