Lee v. Navarro Sav. Ass'n

• Decision Date: 18 June 1979
• Docket Number: No. 76-3550,76-3550
• Citation: 597 F.2d 421
• Parties: Lawrence F. LEE, Jr., et al., Plaintiffs-Appellants, v. NAVARRO SAVINGS ASSOCIATION, Defendant-Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 421

597 F.2d 421

Lawrence F. LEE, Jr., et al., Plaintiffs-Appellants, v. NAVARRO SAVINGS ASSOCIATION, Defendant-Appellee.

No. 76-3550.

United States Court of Appeals, Fifth Circuit.

June 18, 1979.

Rehearing and Rehearing En Banc Denied Aug. 1, 1979.

James A. Ellis, Jr., Don R. Hanmer, Dallas, Tex., for plaintiffs-appellants.

Ernest E. Figari, Jr. (Institutional Investors Trust), David P. Seikel, Dallas, Tex., amicus curiae.

Bernus W. Fischman, Houston, Tex., Lawrence Fischman, Dallas, Tex., for defendant-appellee.

Appeal from the United States District Court for the Northern District of Texas.

Before BROWN, Chief Judge, and AINSWORTH and VANCE, Circuit Judges.

AINSWORTH, Circuit Judge:

The question for decision is whether the district court correctly dismissed this suit for lack of jurisdiction.

Plaintiffs are eight individuals, all non-Texas citizens and trustees of Fidelity Mortgage Investors, a Massachusetts business trust (FMI), who filed this complaint as representatives of FMI seeking damages for breach of contract against defendant Navarro Savings Association, a Texas corporation, in the sum of $1,174,525.17 plus interest and attorneys' fees.

Jurisdiction is asserted by plaintiffs under both the diversity of citizenship and federal question provisions of law. 28 U.S.C. §§ 1332, 1331. The district court rejected both bases of citizenship. ¹ We disagree with the district court's ruling and hold that jurisdiction should have been maintained under diversity of citizenship. It is thus unnecessary that we consider whether there is also federal question jurisdiction.

According to the allegations contained in plaintiffs' complaint, on September 9, 1971, the president of Rockwall Estates, Inc. executed on behalf of the corporation a promissory note to plaintiffs in the amount of $850,000 to evidence money lent to the corporation. The note provided that the principal amount should become due and payable two years from the date thereof but interest payments were to be due and payable monthly. The promissory note provided in pertinent part as follows:

FOR VALUE RECEIVED, the undersigned Rockwall Estates, Inc., (hereinafter sometimes referred to as "Maker"), hereby promises to pay to the order of Laurence F. Lee, Jr., Bert A. Betts, Roy B. Davis, Jr., N. Clement Slade, Jr., Robert M. Green, Luther H. Hodges, James B. McIntosh, Arthur W. Milam, Jack H. Quaritius, Frederick H. Schroeder and John W. York, not individually, but as Trustees of Fidelity Mortgage Investors, a Massachusetts Business Trust, under Declaration of Trust dated May 29, 1969 (hereinafter referred to as "FMI") and their respective successor Trustees under said Declaration of Trust, with power to protect, manage, sell, deliver, transfer, endorse with or without recourse, modify, extend, consolidate, coordinate and spread with any other note, negotiate, collect, discharge, accelerate, enforce and/or without being limited by any of the foregoing deal in any manner with this note, the obligations represented thereby, and exercise any right or option contained in this note, the principal sum of Eight Hundred Fifty Thousand and 00/100 ($850,000.00) Dollars, or so much thereof that may be advanced, together with interest thereon from the date of advances on outstanding principal balance at the rate of five percent (5%) above the prime rate of interest charged by Morgan Guaranty Trust Company of New York, or its successors, on the business day preceding the first day of each successive month during the term hereof, but shall in no case be in excess of one and one/half percent (1 1/2%) per month.

According to the allegations of plaintiffs' suit, prior to and contemporaneously with the execution of the promissory note described, defendant Navarro Savings Association of Dallas, Texas, acting through its president, executed loan commitment letters to Rockwall Estates, Inc. dated July 26, 1971, which were delivered and accepted by Rockwall's president at the closing of the loan by FMI to Rockwall Estates, Inc. on September 9, 1971. Under these "take out" commitment letters defendant Navarro agreed to loan to Rockwall Estates, Inc. $850,000 any time between September 8, 1973 and August 31, 1974 "so that such sum could be used by Rockwall Estates, Inc. to pay to Plaintiff the sums due under the note to them." ²

Plaintiffs also alleged that on August 5, 1971, the president of defendant Navarro sent to FMI through Ronald L. Langley for its advisors a letter agreement (attached as an exhibit) which provided that Navarro would either purchase the Rockwall mortgage note of $850,000 or make available funds for additional loan at any time the note becomes delinquent. It was further alleged that on September 9, 1971, at the closing of the loan by FMI to Rockwall, the president of defendant Navarro executed and delivered the loan commitment letters and orally stated to FMI's representative that the commitment fee had been actually received by Navarro. Thereafter, on September 10, 1971, the president of Rockwall assigned in writing the commitment letters and obligations of defendant Navarro to FMI. It is alleged that it was upon reliance of the assignment and commitment letters that the loan of $850,000 was made by FMI to Rockwall.

Plaintiffs further alleged that when Rockwall Estates, Inc. became sixty days' delinquent in the payment of installments due on its loan to FMI, FMI gave defendant Navarro notice to make the loan covered by its commitment, but Navarro "breached its obligation under the commitment to make the loan in question" causing FMI to foreclose on the Deed of Trust on real estate securing the note, and resulting in damages and a deficiency to plaintiffs in the amount of $174,525.17 plus interest and attorneys' fees as provided in the note plus $1,000,000 punitive and exemplary damages.

The allegations in the suit of plaintiffs, trustees of FMI, disclose that under Article III of the Declaration of Trust, "Trustees' Power," the trustees have the following general power (3.1):

The Trustees shall have, without other or further authorization, Full, absolute and exclusive power, control and authority over the Trust Estate and of the business and affairs of the Trust, Free from any power and control of the Shareholders, to the same extent as if the Trustees were the sole owners of the Trust Estate in their own right, subject only to the limitations contained in this Declaration. The Trustees may do and perform such acts and things as in their sole judgment and discretion are necessary and proper for carrying out the purposes of the Trust or conducting its business and affairs. The enumeration of specific powers shall not be construed as limiting the exercise of general powers or any other specific power. Such powers of the Trustees may be exercised without order of or resort to any court.

(emphasis supplied)

Article III, "Specific Powers," (3.2r) of the Declaration provides that the powers of the trustees shall include the power "(t)o collect, sue for and receive all sums of money coming due to the Trust, and to prosecute, join, defend, compromise, abandon, or adjust, any actions, suits, claims, demands or other litigation relating to the Trust, the Trust Estate or the Trust's affairs."

Article I of the Declaration of Trust (1.1) states in part that "the Trustees shall conduct and transact the activities of the Trust, make and execute all documents and instruments and sue and be sued in the name of the Trust or in their names as Trustees of the Trust."

A careful review of the Declaration of Trust, as indicated above, amply supports plaintiffs' contention that as trustees of FMI they are the real parties at interest, exclusively entitled to enforce the rights at issue in this case. In addition to the powers already enumerated, plaintiffs as trustees have absolute power to invest the capital and funds of the trust, to lend money, and to possess and exercise the rights incident to the ownership of mortgage loans. See Declaration of Trust, Article 3.2(a), (b), (c), (g) and (k). Article IV states that the trustees are "responsible for the general policies of the Trust and for such general supervision of the business of the Trust conducted by officers, agents, employees, investment advisers or independent contractors of the Trust as may be necessary to insure that such business conforms to the provisions of this Declaration."

On the other hand, the shareholders' rights are extremely limited, since they are entitled only to the rights of equitable interest owners or beneficiary shareholders, without any powers of control or management whatsoever. For example, Article 6.2, "Rights of Shareholders," in the Declaration reads in pertinent part as follows:

The Shareholders shall have no legal right, title or interest in or to the Trust Estate and shall have no right to a partition thereof during the continuance of the Trust. Shareholders shall, however, be the equitable beneficiaries of the Trust, but shall have only the rights provided for in this Declaration and in the Trustees' Regulations. Except with respect to matters in which the Shareholders are specifically given the right to vote by this Declaration, no action taken by the Shareholders at any meeting shall in any way bind the Trustees.

Thus, according to the allegations of the suit and accompanying exhibits, it is apparent that the general and specific powers relating to the management and control of the FMI trust repose in the eight trustees who are plaintiffs in this suit. The Declaration of Trust could not be more specific in this regard. Likewise, the Rockwall promissory note of $850,000 was specifically made payable to the order of the eight trustees, plaintiffs herein, in their capacities as trustees of FMI under the Declaration of Trust.

The effect of the district court's holding that the citizenship of each of the shareholders must be considered rather than the...