Gibson v. First Federal Sav. and Loan Ass'n of Detroit

Decision Date17 October 1974
Docket NumberNo. 74-1334,74-1334
PartiesHarry GIBSON et al., Plaintiffs-Appellants, v. FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF DETROIT, Defendant-Appellee.
CourtU.S. Court of Appeals — Sixth Circuit

Lloyd E. Powell, Detroit, Mich., Allan Neef, Darden, Neef & Heitsch, Robert Houston, Harry Gibson, Detroit, Mich., for plaintiffs-appellants.

Robert C. Winter, Clark, Klein, Winter, Parsons & Prewitt, Warren D. Couger, Detroit, Mich., for defendant-appellee.

Before CELEBREZZE, LIVELY and ENGEL, Circuit Judges.

LIVELY, Circuit Judge.

The plaintiffs in this action are the owners of real estate on which the defendant holds mortgages that are insured by the Federal Housing Administration (FHA). Each of the mortgages provides that the mortgagors will pay each month to the mortgagee a single payment which includes, in addition to accrued interest and principal sufficient to amortize the loan, an amount in escrow sufficient to pay FHA mortgage insurance premiums, taxes and special assessments and premiums on policies of fire and other hazard insurance covering the mortgaged premises as they come due. The complaint alleges that under federal regulations the defendant is only permitted to collect monthly from each mortgagor an amount equal to 1/12 of the estimated annual taxes, assessments, insurance premiums and other charges, but that the defendant has collected amounts in excess of 1/12 of the reasonable estimates of these charges. The complaint further charges that defendant has commingled amounts collected for escrow accounts with its other funds from which investments were made. The income earned on such investments, it is alleged, is retained by the defendant rather than being credited to the escrow accounts of the various mortgagors so as to reduce future escrow payments required to be made by them. It is contended that this results in unjust enrichment to the defendant.

Although it is claimed that the defendant was guilty of other wrongful acts which resulted in damage to the plaintiffs, only two substantive issues were presented to the district court: (1) the alleged collection of excessive escrow deposits, and (2) failure to account to mortgagors for the earnings of escrow funds invested by the defendant. The plaintiffs sought to have this case proceed as a class action under Rule 23(b), Fed.R.Civ.P. However, the District Judge ruled that there was no necessity to determine the class action issue upon his finding that the named plaintiffs had presented no basis upon which their individual claims for relief could be granted. The plaintiffs have not argued the class action issue on appeal.

In their complaint and the amendments thereto the plaintiffs pled various statutory grounds of jurisdiction. The district court dealt with the issue of jurisdiction in a preliminary order and memorandum opinion. 1 Judge Feikens found that the district court had jurisdiction under 28 U.S.C. 1337. This section confers jurisdiction on the district courts, without regard to a minimum amount, of all civil actions or proceedings arising under acts of Congress regulating commerce. Relying principally on Murphy v. Colonial Federal Savings and Loan Association, 388 F.2d 609 (2d Cir. 1967), the district court held that the commerce clause was a significant source of the power of Congress to regulate the savings and loan industry under the Home Owners' Loan Act of 1933 as amended, 12 U.S.C. 1461 et seq. The Federal Home Loan Bank Board enacts regulations pursuant to 12 U.S.C. 1464 which control many of the operations of federal savings and loan associations. Among these regulations is 12 CFR 545.6-11, which provides in part:

A federal association may require that an equivalent of one-twelfth of the estimated annual taxes, assessments, insurance premiums and other charges on real estate security be paid in advance . . . to enable the association to pay such charges as they become due from the funds so received . . ..

At the time that determination of jurisdiction was made by the district court one of the claims being pressed by the plaintiffs was that the defendant had collected amounts in excess of 1/12 of the estimated requirements for the enumerated charges in violation of the provisions of the quoted regulations. (The first claim was subsequently stricken with the acquiescence of plaintiffs.) Under the reasoning of the Murphy case (see also Davis v. Romney, 490 F.2d 1360, 1365-1366 (3rd Cir. 1974)), the allegation that the defendant was acting in violation of a lawful regulation of the Federal Home Loan Bank Board which deals with mortgagor-mortgagee relationships was sufficient to confer federal jurisdiction. Insofar as the Federal Home Loan Bank Board determines to regulate relationships between federal savings and loan associations and their borrowing and investing members, consideration of such regulations by federal courts is most likely to produce uniformity.

The defendant admitted that upon receiving the monthly payment from each mortgagor it credited the various accounts, including the escrow account of each mortgage and then deposited the payment in one of two general fund bank accounts maintained by the association. It further admitted that portions of these accounts were invested in shortterm securities and that the escrow accounts of the plaintiffs were not credited with any part of the earnings from such investments. The district court found that there was no genuine issue as to any material fact with respect to these activities of the defendant, and that the defendant was entitled to judgment as a matter of law. The court found that 'the escrow funds are used exclusively for the purpose for which they were received.' The court concluded that no federal law required defendant to segregate escrow accounts or forbade the use of the escrow funds for investment. 2 In a later unpublished memorandum opinion (filed December 5, 1973) the district court held that the plaintiffs had 'presented no basis on which relief can be granted.'

The defendant urges us to reexamine the question of jurisdiction. Two regulations are relied upon by the plaintiffs in support of their claims concerning commingling and investment of escrow funds. FHA Regulation 24 CFR 203.7(a)(3) merely provides that FHA may withdraw approval of any lending institution which uses escrow funds for any purpose other than that for which they were received. The other federal regulation relied on by plaintiffs, 24 CFR 203.7(a)(2),...

To continue reading

Request your trial
23 cases
  • Birbeck v. Southern New England Production Credit
    • United States
    • U.S. District Court — District of Connecticut
    • March 29, 1985
    ...Ass'n., 388 F.2d 609 (2nd Cir.1967) and Gibson v. First Federal Savings & Loan Ass'n., 364 F.Supp. 614 (E.D.Mich. 1973), aff'd, 504 F.2d 826 (6th Cir.1974) in which federal jurisdiction were found, are inapposite here. See Federal Land Bank of Columbia v. Cotton, 410 F.Supp. 169, 170 This c......
  • City Federal Savings and Loan Ass'n v. Crowley
    • United States
    • U.S. District Court — Eastern District of Wisconsin
    • April 24, 1975
    ...which a federal district court has original jurisdiction under both 28 U.S.C. §§ 1331(a)1 and 1337. Gibson v. First Federal Savings and Loan Assn. of Detroit, 504 F.2d 826 (6th Cir. 1974); Milberg v. Lawrence Cedarhurst Federal Savings and Loan Assn., 496 F.2d 523 (2d Cir. 1974); Murphy v. ......
  • SAFE WORKERS'ORGANIZATION, CHAP. NO. 2 v. Ballinger
    • United States
    • U.S. District Court — Southern District of Ohio
    • November 20, 1974
    ...v. Amalgamated Clothing Workers of America, Philadelphia Jt. Bel., 473 F.2d 1303 (3rd Cir. 1973). Also see: Gibson v. First Federal S. & L. A., 504 F.2d 826 (6th Cir. 1974). For present purposes, plaintiffs' allegation "that the defendants have coerced and intimidated members of plaintiff l......
  • King v. Edwards
    • United States
    • U.S. District Court — Northern District of Georgia
    • October 1, 1982
    ...Murphy v. Colonial Federal Savings and Loan Association, 388 F.2d 609 (2d Cir. 1967). See also Gibson v. First Federal Savings and Loan Association of Detroit, 504 F.2d 826 (6th Cir. 1974); City Federal Savings and Loan Association v. Crowley, 393 F.Supp. 644 (E.D.Wis.1975). Defendants argu......
  • Request a trial to view additional results

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT