Glen Ridge I Condominiums, Ltd. v. Federal Sav. and Loan Ins. Corp.

• Decision Date: 30 December 1986
• Docket Number: No. 05-85-00873-CV,05-85-00873-CV
• Citation: 734 S.W.2d 374
• Parties: GLEN RIDGE I CONDOMINIUMS, LTD., et al., Appellants, v. FEDERAL SAVINGS AND LOAN INSURANCE CORPORATION, et al., Appellees.
• Court: Texas Court of Appeals

Page 374

734 S.W.2d 374

GLEN RIDGE I CONDOMINIUMS, LTD., et al., Appellants, v. FEDERAL SAVINGS AND LOAN INSURANCE CORPORATION, et al., Appellees.

No. 05-85-00873-CV.

Court of Appeals of Texas Dallas.

Dec. 30, 1986.

Supplemental Opinion on Denial of

Rehearing June 25, 1987.

Rehearing Denied July 28, 1987.

Robert H. Renneker, Anthony A. Petrocchi, D. Ronald Reneker, Dallas, for appellants.

James E. Doyle, T. Michael Wall, John D. Roady, Houston, David M. Taylor, Dallas, for appellees.

Before AKIN, DEVANY and SCALES, JJ.

ON MOTION FOR REHEARING

AKIN, Justice.

The issue dispositive of this appeal is whether Congress may, consistent with the third article of the federal constitution, preclude the judicial branch from "restrain[ing] or affect[ing] the exercise of powers or functions of a conservator or receiver" of a federally insured savings and loan association. Because doing so in effect confers upon an agency of the executive branch those powers constitutionally committed to the judiciary, we hold that it may not.

Glen Ridge I Condominiums and others obtained financing from Empire Savings and Loan for real estate investment in the "I-30 corridor" of Dallas County. Glen Ridge appeals the trial court's dismissal of its suit to enjoin the Federal Savings and Loan Insurance Corporation, acting as receiver of Empire, from foreclosing on its property. After consideration of Glen Ridge's motion for rehearing, we agree that the trial court erred in dismissing the suit for want of jurisdiction. Consequently, we withdraw our former opinion, reverse the judgment of the trial court, and remand for consideration of Glen Ridge's claims under state law.

When Empire became insolvent, the Federal Home Loan Bank Board appointed FSLIC as receiver of Empire and ordered FSLIC to liquidate Empire's assets. FSLIC then posted the property of Glen Ridge for foreclosure pursuant to deeds of trust given to Empire to secure financing for land acquisition and condominium construction.

Glen Ridge sued FSLIC, Empire, and the various trustees in state court seeking cancellation of the deeds of trust, damages, injunctive relief, and attorney's fees. FSLIC moved to dismiss, asserting that the trial court lacked jurisdiction of the subject matter by virtue of section 1464(d)(6)(C) of title twelve of the United States Code, which provides that "no court may ... restrain or affect the exercise of powers or functions of a receiver." The trial court agreed and dismissed the suit. Glen Ridge asserts in this appeal that this section violates the constitutional scheme of separated powers to the extent that it vests exclusive power in an administrative agency to adjudicate rights created by state common law without the consent of the litigants and

subject only to appellate review under the federal Administrative Procedure Act.

Northern Pipeline Prohibits FSLIC Adjudication

Article III, section 1, of the Constitution of the United States provides:

The judicial power of the United States, shall be vested ... in such inferior courts as the Congress may from time to time ordain and establish. The Judges ... shall hold their offices during good Behavior, and shall, at stated times, receive for their Services, a Compensation, which shall not be diminished during their Continuance in Office.

As an element of the constitutional system of checks and balances, these provisions were designed to give federal judges maximum independence from the executive or legislative branches of the government. United States v. Quarles, 350 U.S. 11, 16, 76 S.Ct. 1, 5, 100 L.Ed. 8 (1955). These provisions have produced confusion and controversy, and have never been fully defined. Glidden Company v. Zdanok, 370 U.S. 530, 533, 82 S.Ct. 1459, 1463, 8 L.Ed.2d 671 (1962); see Redish, Legislative Courts, Administrative Agencies, and the Northern Pipeline Decision, 1983 Duke L.J. 197 (1982); see also 1616 Reminc Limited Partnership v. Atchison & Keller Company, 704 F.2d 1313, 1316 (4th Cir.1983). We have, however, found guidance in two decisions of the United States Supreme Court.

In Northern Pipeline Construction Co. v. Marathon Pipeline Company, 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982), the bankrupt Northern Pipeline sued Marathon in federal bankruptcy court for breach of contract, breach of warranty, misrepresentation, coercion, and duress. Marathon moved for dismissal on the ground that the Bankruptcy Act of 1978 unconstitutionally conferred article III judicial power upon bankruptcy judges who lacked the life tenure and salary protections of article III. The Supreme Court agreed with Marathon and rejected the government's contention that article I endowed Congress with sufficient authority for the bankruptcy court's jurisdiction of Northern Pipeline's claims.

The court's plurality opinion identified three categories of legislative courts which could validly exercise parts of the federal judicial power. These were the territorial courts, ¹ courts-martial, and courts or administrative agencies which adjudicate public rights. 458 U.S. at 64-67, 102 S.Ct. at 2867-69. Bankruptcy courts were clearly neither territorial courts nor courts-martial. Thus, the court was squarely faced with the question of whether bankruptcy courts only adjudicated questions concerning public rights.

Public rights arise, at a minimum, between the government and persons subject to its authority as a result of constitutional or legislative provisions and are typically found in connection with the exercise of congressional power granted by constitutional provisions concerning interstate and foreign commerce, taxation, immigration, the public lands, public health, the post office, veterans, and debts of customs agents. 458 U.S. at 68, 70, 102 S.Ct. at 2871; Crowell v. Benson, 285 U.S. 22, 51, 52 S.Ct. 285, 292, 76 L.Ed. 598 (1932). Other public rights derive from congressionally-created benefits, such as the restructuring of debtor-creditor relationships, radio station licenses, pilot licenses, and certifications for common carriers. 458 U.S. at 71, 102 S.Ct. at 2871. Public rights contrast with such state-created private rights as the right to recover contract damages. 458 U.S. at 71-72, 102 S.Ct. at 2871-72.

The plurality decided that Northern Pipeline's right to recover contract damages from Marathon was not a public right, but a private right that must be adjudicated by an article III court. Justice Rehnquist's concurrence stated that the lawsuit sought recovery under counts which were traditionally actions at common law and which could not be adjudicated over Marathon's objection by a non-article III tribunal. Both opinions held that the Bankruptcy Act, in purporting to grant jurisdiction of such actions to the bankruptcy courts, was unconstitutional. 458 U.S. at 76, 87, 90, 102 S.Ct. at 2874, 2880-81.

FSLIC contends that the issues in this lawsuit concern its public right to liquidate Empire's assets and thereby recoup the insurance payments it has made to depositors of Empire. This contention overlooks the fact that, even though the government is currently a party, the substantive rights at issue arose between two private parties. Furthermore, the substantive rights in issue here arose out of transactions conducted according to state law and not out of constitutional or legislative provisions governing FSLIC.

FSLIC, as receiver of a state-chartered savings and loan has the right to liquidate the latter's assets. 12 U.S.C. §§ 1729(b)(1), (c)(1); 1464(d)(11). FHLBB regulations provide only that FSLIC may "exercise all rights and powers of such institution ... including ... [those arising] under any ... deed of trust." 12 C.F.R. § 569(a)(6). This regulation provides FSLIC with no other or different rights than those arising under state law, and obtained by Empire under the deeds of trust. These rights had already vested before FSLIC became involved. Consequently, the rights did not arise between FSLIC and Glen Ridge under federal statutory law, but between Empire and Glen Ridge under the laws of this state.

Indeed, Glen Ridge does not contest FSLIC's right to liquidate these assets validly owned by Empire, and thereby recoup insurance payments, but rather it challenges the validity of Empire's claims to certain assets. Since the determination of these claims are governed by state-created rights in the deeds of trust, this lawsuit does not concern FSLIC's public right to liquidate assets but instead concerns traditional common law remedies. Consequently, federal jurisdiction over this lawsuit is proper only in an article III court, and the grant of this jurisdiction to a non-article III body by section 1464(d)(6)(c) is unconstitutional. It follows that the state court, exercing its concurrent jurisdiction, erred in dismissing the suit.

Thomas Analysis Does Not Alter Unconstitutionality

This conclusion is further supported by the holding in Thomas v. Union Carbide Agricultural Products, Co., 473 U.S. 568, 105 S.Ct. 3325, 87 L.Ed.2d 409 (1985). The United States Supreme Court there held that article III did not prohibit Congress from granting a non-article III body jurisdiction over disputes among participants in a pesticide registration program, conducted by the Environmental Portection Agency pursuant to the Federal Insecticide, Fungicide and Rodenticide Act. 105 S.Ct. at 3328. Under the Act, manufacturers were required to submit research data for EPA review before registration. Manufacturers of pesticides similar to those previously registered were allowed to use research data that had been previously filed, provided that they compensated the original registrant for such use. Disputes over the amount of compensation were referred to, and decided by, arbitrators rather than article III courts.

In Thomas, the Court noted that, although the dispute was between private parties, it arose from a scheme that constituted a "public use" and bore many of the characteristics of a...