James River Apartments v. Federal Housing Admin., Civ. No. 8415.

• Court: United States District Courts. 4th Circuit. United States District Court (Maryland)
• Writing for the Court: R. DORSEY WATKINS
• Citation: 136 F. Supp. 24
• Docket Number: Civ. No. 8415.
• Decision Date: 02 December 1955
• Parties: JAMES RIVER APARTMENTS, Inc. v. FEDERAL HOUSING ADMINISTRATION.

136 F. Supp. 24

JAMES RIVER APARTMENTS, Inc.
v.
FEDERAL HOUSING ADMINISTRATION.

Civ. No. 8415.

United States District Court D. Maryland.

December 2, 1955.

136 F. Supp. 25

Francis B. Burch, Baltimore, Md., for plaintiff.

George Cochran Doub, U. S. Atty., William F. Mosner, Asst. U. S. Atty., Baltimore, Md., Geo. S. Leonard, Acting Asst. Atty. Gen., Edw. H. Hickey, Attorney, Department of Justice, Washington, D. C., and Max L. Kane, Attorney, Department of Justice, Arlington, Va., for defendant.

R. DORSEY WATKINS, District Judge.

This action was originally brought in the Circuit Court No. 2 of Baltimore City for a declaratory judgment under the Maryland Code of Public General Laws, Article 31A, sections 1-16, that the Federal Housing Administration was not entitled to inspect the books and records of the plaintiff corporation or that, if a right to inspect existed, it was limited to determining whether or not the plaintiff had complied with the terms of its Articles of Incorporation and that any information so obtained could not be disclosed to others. The case was removed by the defendant to this court, and the plaintiff has filed a motion to remand.

The bill of complaint and exhibits annexed thereto show that the plaintiff was incorporated under the laws of Maryland, and its purposes as set out in Article Third, paragraphs (a) and (d) of its Articles of Incorporation were to create a private corporation to provide housing, said corporation "To be regulated by the Federal Housing Commission¹ as to rents or sales, charges, capital structure, rate of return and methods of operation, all pursuant to the provisions of Title VIII of the National Housing Act, as amended" and to obtain from the Federal Housing Commissioner mortgage insurance "pursuant to the provisions of the National Housing Act as amended and applicable Administrative Rules and Regulations covering * * * evidence of indebtedness * * *." The mortgage insurance was obtained, and, as provided for in the Articles of Incorporation and the Articles of Amendment, 100 shares of preferred stock having a par value of $1 a share were issued to the Federal Housing Administration in order that the Federal Housing Commissioner might regulate and restrict the plaintiff as set out in its charter. Such regulation included the right to inspect all books and records, and, upon default, to require a complete audit at the expense of the plaintiff corporation and to call a special meeting to remove existing directors and elect their successors. When the defendant notified the plaintiff of its intention to examine the plaintiff's books and implied that the failure to permit such an examination would constitute a default under the provisions of the Articles of Incorporation, the plaintiff immediately brought suit in the Circuit Court No. 2 of Baltimore City and asked that the defendant be required to post bond in the penal sum of $500,000 to insure the defendant's compliance with any decree handed down by said court.

In its motion to remand the plaintiff alleges that (1) this court is without jurisdiction to adjudicate under the Maryland Declaratory Judgment Act; (2) the amount in controversy does not

136 F. Supp. 26

exceed $3,000 exclusive of interest and costs; (3) no removal bond was filed as required by Title 28 U.S.C. § 1446 (d); or (4) notice given thereof as required by Title 28 U.S.C. § 1446(e); and (5) an answer was not filed by the defendant within the time allowed by Rule 81(c) of the Federal Rules of Civil Procedure, 28 U.S.C.A

1. The court's general authority to entertain suits for declaratory judgment is clearly provided for in Title 28 U.S.C. § 2201. In seeking a construction of certain provisions of its Articles of Incorporation, the plaintiff has raised a federal question. The bill of complaint and exhibits annexed thereto indicate that the plaintiff subjected itself to regulation by the Federal Housing Commissioner in accordance with the provisions of the National Housing Act, 12 U.S.C.A. § 1748(b), as well as all applicable administrative rules and regulations. A necessary adjunct to the right to regulate is the right to inspect. Inspection was provided for in the Articles of Incorporation. The plaintiff is seeking to have this right of inspection denied completely or limited "to the extent authorized by law and then only for the purposes of determining if the complainant has complied with the terms and conditions of said Articles of Incorporation." To adjudicate such a matter must of necessity require an interpretation of the National Housing Act and of administrative rules and regulations issued pursuant thereto as well as their application to the present factual situation. More is involved than just the construction of the Articles of Incorporation of a Maryland corporation.

2. The amount in controversy is not the aggregate value of the 100 shares of preferred stock held by the Federal Housing Administration, or its par value of $100. It is rather the value of the property sought to be protected. (Hunt v. New York Cotton Exchange, 1907, 205 U.S. 322, 336, 27 S.Ct. 529, 51 L.Ed. 821; Bitterman v. Louisville & Nashville Railroad Co., 1907, 207 U.S. 205, 225, 28 S.Ct. 91, 52 L.Ed. 171). In Textron, Inc., v. American Woolen Co., D.C.D.Mass.1954, 122 F.Supp. 305, 308, the court, in considering the validity of proxies necessary to constitute a quorum, held the amount in controversy to be "the value of the plaintiff's share in the company, control, or partial control of which may depend upon the outcome of the election." Rights with respect to the control of property mortgaged for an amount in excess of $3,000,000 are involved. The right to inspect, and, upon default, to require an audit and to elect new directors are merely methods the defendant has chosen to protect this property right, the value of which can be measured in money and far exceeds $3,000, exclusive of interest and costs. The method of relief the plaintiff has chosen to avoid being found in default is a declaratory judgment. The plaintiff, now questioning the amount in controversy, indicated that it thought the amount to be well in excess of $3,000 when in the bill of complaint it alleged the defendant's actions would result in irreparable harm and requested a bond in the penal sum of $500,000 to insure the defendant's compliance with any decree of court.

This cause of action, arising under the laws of the United States and involving an amount in controversy in excess of $3,000 exclusive of interest and costs, is one over which this court has original jurisdiction under Title 28 U.S.C. § 1331. It is removable without regard to the citizenship or residence of the parties under Title 28 U.S.C. § 1441(a) and (b). This court also has original jurisdiction of any civil action in which the requirements of the jurisdictional amount and of diversity of citizenship are met (Title 28 U.S.C. Sec. 1332), and such an action is removable under Title 28 U.S.C. § 1441 if the defendant is not a citizen of the State in which the action is brought. The plaintiff is a Maryland corporation while the defendant is a federal agency created under the laws of Congress, with its principal office and the official residence of its Commissioner in

136 F. Supp. 27

the District of Columbia. To treat the defendant for the purpose of determining diversity of citizenship as a federal corporation and a citizen of the District of Columbia would seem to be in line with the language of such cases as Keifer & Keifer v. Reconstruction Finance Corporation, 1939, 306 U.S. 381, 390, 391, 59 S.Ct. 516, 83 L.Ed. 784; Federal Housing Administration v. Burr, 1940, 309 U.S. 242, 60 S.Ct. 488, 84 L.Ed. 724; Seven Oaks, Inc. v. Federal Housing Administration, 4 Cir., 1948, 171 F.2d 947, 949. A direct...