Franklin v. Federal Land Bank of St. Louis, Misc. No. 89-W-011-1
| Decision Date | 07 March 1989 |
| Docket Number | Adv. No. 88-0685-1-12.,Misc. No. 89-W-011-1,Bankruptcy No. 88-03932-1-12 |
| Parties | James L. FRANKLIN and Mildred A. Franklin, Plaintiffs, v. The FEDERAL LAND BANK OF ST. LOUIS, et al., Defendants. |
| Court | U.S. District Court — Western District of Missouri |
Eugene J. Feldhausen, Kansas City, Mo., for plaintiffs.
John Stonitsch, Trustee, Kansas City, Mo.
Jay Selanders, Daniel Phillips, Kansas City, Mo., for defendants.
Before the court is a report and recommendation issued by the Honorable Karen M. See, United States Bankruptcy Judge, on January 13, 1989. In the report, Judge See notes this action is limited to matters of state law concerning foreclosure and fraudulent conveyance. Judge See recommends that, absent a significant federal question, this action should be litigated in the Circuit Court of Saline County, Missouri, where it originated. On January 26, 1989, the defendant bank filed objections to the report and recommendation, urging that this court has jurisdiction pursuant to 28 U.S.C. § 1331. For the reasons set forth below, the court will adopt Judge See's recommendation. For lack of jurisdiction, this court will be unable to entertain this lawsuit.
Plaintiffs filed their two-count petition in the Circuit Court of Saline County, Missouri, on November 11, 1987, naming the Federal Land Bank of St. Louis and Donald S. Huff, a substitute trustee, as defendants. The case was assigned number CV487-283.
Plaintiffs allege that, on May 13, 1982, they delivered to the bank a promissory note in the principal amount of $428,100, secured by a deed of trust on plaintiffs' farm property. Plaintiffs further allege that the defendant trustee, acting for the bank, tried to foreclose the deed of trust on November 18, 1986. Plaintiffs claim that they had improper and inadequate notice and demand, so the foreclosure is void. Plaintiffs assert the bank failed to follow its own procedures and thus deprived plaintiffs of procedural due process in violation of 12 U.S.C. §§ 2001 et seq., 12 C.F.R. Part 600 et seq., and the Fifth Amendment to the United States Constitution. Plaintiffs further allege failure to comply with the provisions of Mo.Rev.Stat. §§ 443.310 and 443.320. In Count I plaintiffs seek vacation of the foreclosure. In Count II plaintiffs seek an accounting for the proceeds of the property sale.
On December 18, 1987, defendants filed their joint answer, counterclaims and motion to join additional parties. Counterclaim Count I seeks a deficiency on the promissory note, and counterclaim Count II alleges fraudulent conveyance. On January 7, 1988, defendants filed their first interrogatories, request for admissions and request for production of documents. On January 22, 1988, plaintiffs filed their joint response to Count I of defendants' counterclaim, and filed a motion to dismiss Count II of the counterclaim.
At a hearing on March 4, 1988, the circuit court considered the defendants' motion to join additional parties and plaintiffs' motion to dismiss Count II of the counterclaim. Plaintiffs responded on March 7, 1988, to all discovery propounded to them. On March 18, 1988, the circuit court granted leave to join additional parties defendant and denied plaintiffs' motion to dismiss.
Defendants filed a joint answer and the bank's amended counterclaim in circuit court on March 31, 1988. Plaintiffs filed a voluntary petition for relief under Chapter 12, Title 11, United States Code, on September 9, 1988, in the United States Bankruptcy Court for the Western District of Missouri. The case was assigned number XX-XXXXX-X-XX.
On October 24, 1988, the defendant bank, a creditor of plaintiffs, filed an application for removal of the civil suit from the circuit court of Saline County. The application states that jurisdiction was proper pursuant to 28 U.S.C. §§ 157(c) and 1334(b), in that the proceeding was related to a case arising under the Bankruptcy Code. The application further states removal was appropriate under 28 U.S.C. § 1452(a) and Bankruptcy Rule 9027 in that this court is the district court for the district in which the civil action was pending. The defendant bank filed a bond to assure payment of costs incurred by the removal, if this action were determined not to be removable or is improperly removed. The removed action was assigned adversary case number XX-XXXX-X-XX.
The underlying bankruptcy case was dismissed with prejudice by Judge See on November 3, 1988. On December 14, 1988, a motion was filed to withdraw the reference to the bankruptcy court of the removed civil action. The bankruptcy court granted the motion to withdraw reference. On January 13, 1989, the bankruptcy court issued its report and recommendation. The report concludes:
In its objection, the bank urges that the bankruptcy court misconstrued the nature of the underlying causes of action. The bank asserts that this court has independent jurisdiction pursuant to 28 U.S.C. § 1331, which vests jurisdiction of cases arising under the Constitution, laws or treaties of the United States. The bank notes that plaintiffs have raised issues in their petition regarding alleged violations of 12 U.S.C. §§ 2001 et seq., 12 C.F.R. Part 600 et seq., and the Fifth Amendment of the United States Constitution. Consequently, the bank requests the rejection of the bankruptcy court's recommendation, withdrawal of reference to the bankruptcy court, and retention of jurisdiction by this court.
The issue here is whether there is a substantial federal question here to provide jurisdiction under 28 U.S.C. § 1331. As explained below, this court believes the matter here does not present a sufficient federal question to permit jurisdiction.
Under 28 U.S.C. § 1452(a), a party may remove a cause of action to the district court for the district in which the civil action is pending if such district court has jurisdiction under 28 U.S.C. § 1334. Section 1334(b) provides that the district courts shall have original but not exclusive jurisdiction over all civil proceedings arising under Title 11 (the Bankruptcy Code), or arising in or related to a case under Title 11. Section 1452(b) provides that the court to which a cause of action is removed may remand the action, and that an order remanding is not reviewable by appeal.
Under 28 U.S.C. § 1478(a), a party may remove a cause of action to the bankruptcy court if the bankruptcy courts have jurisdiction over such cause of action. Bankruptcy Rule 9027 sets forth the mechanics for removing a cause of action to bankruptcy court. Section 1478(b) provides that the bankruptcy court to which an action is removed may remand, and that an order remanding is not reviewable by appeal.
Assuming (without deciding) the removal was proper while plaintiffs' bankruptcy petition was pending, jurisdiction under these statutes vanished when the predicate bankruptcy case was dismissed with prejudice. The bank tacitly concedes as much by relying solely on 28 U.S.C. § 1331 as a jurisdictional basis in its objection to the bankruptcy judge's report and recommendation. The bank's position is that a federal question arises from plaintiffs' claim of violations of 12 U.S.C. §§ 2001 et seq., 12 C.F.R. Part 600 et seq., and the procedural due process guarantee of the Fifth Amendment.
Chapter 23 of Title 12, United States Code, begins with Section 2001. Chapter 23 provides for the establishment and regulation of the various lending agencies, including federal land bank associations, in the Farm Credit System. They are chartered by and subject to the supervision of the Farm Credit Administration. See 12 U.S.C. § 2002. Regulations contained in 12 C.F.R. Part 600 et seq. are promulgated under Chapter 23.
The jurisdictional question presented here was considered in LPR Land Holdings v. Federal Land Bank of St. Paul, 651 F.Supp. 287 (E.D.Mich.1987). The plaintiffs in that case, at 290-91, relied upon Schlake v. Beatrice Production Credit Ass'n, 596 F.2d 278 (8th Cir.1979), for the proposition that the United States District Court had jurisdiction. Regarding jurisdiction, both cases concerned the effects of the pervasive regulation of land banks and the impact of procedural due process claims under the Fifth Amendment. Jurisdiction was found lacking in LPR Land, even though the jurisdiction was upheld in Schlake.
In LPR Land, supra, 651 F.Supp. at 288, plaintiffs invoked federal-question jurisdiction pursuant to 28 U.S.C. § 1331. Plaintiffs alleged a procedural due process violation and two pendent state claims, all based upon defendant Federal Land Bank of Saint Paul's failure to honor plaintiff's written right of first refusal to purchase five tracts of real estate. The court addressed the due-process issue at 289:
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