Mountain Ridge State Bank v. Investor Funding

• Decision Date: 21 March 1991
• Docket Number: Civ. A. No. 91-80.
• Citation: 763 F. Supp. 1282
• Parties: MOUNTAIN RIDGE STATE BANK, Plaintiff, v. INVESTOR FUNDING CORPORATION, et al., Defendants.
• Court: U.S. District Court — District of New Jersey

763 F. Supp. 1282

MOUNTAIN RIDGE STATE BANK, Plaintiff, v. INVESTOR FUNDING CORPORATION, et al., Defendants.

Civ. A. No. 91-80.

United States District Court, D. New Jersey.

March 21, 1991.

John G. Geppert, Jr., Wiley, Malehorn & Sirota, Morristown, N.J., for plaintiff F.D. I.C.

Gary Trachten, Kudman & Trachten, New York City, for defendants Daniel H. Cohen, Louis L. Cregler, Paul Glaser, Carolyn Glaser, John J. Keelin, Betty A. Keelin, Howard Kitain, Sandra Kitain, Ursala Meyer, Jose Saavedra and Angela Saavedra.

David R. Rudd, Rudd and Poss, South Orange, N.J., for defendants Mahesh Agashiwala, Loma Agashiwala, Mukesh Ajmera, Dina Ajmera, Avinash Bapat, Shahsultan Bapat, Custodians of Anil Bapat, Robert Beckerle, Elgene Beckerle, Samuel J. Berman, Anand M. Dhanda, Russel J. Dunlop, Linda Dunlop, Robert A. Emmett, John R. Everitt, Peter J. Ferrara, Consuelo C. Ferrara, Manhar Ghandi, Daksha Ghandi, Jean Goddard, William Goddard, Mandukant Gosalia, Eugene McCloskey, Jayaprakash Modi, Subramanian Natarajan, James L. Nolan, Mary E. Nolan, William Nurse, Phyllis Nurse, Elliot Palmer, Shirish C. Parikh, Chhaya Parikh, David Rand, Rhonda Rand, Samuel Klein and Co., Paul Taenzler, Warren Lieberman, Marvin Gottlieb, Joseph Faccone, Jerome Fien, John Dashuta, Howard Ehrlich, James Tennant, George Huss, Nathan Honig, Estate of Frederick M. Stern, Subramanian Sundaraman, Trygve S. Vik, Sharadkuman Saraiya, Raksha Saraiya, Subodhchandra Trivedi, Sudha Trivedi, James R. Baehler and Jeffrey Singer.

OPINION

LECHNER, District Judge.

This matter is before the court on the motion of certain defendants (the "Moving Defendants") to remand this case to the Superior Court of New Jersey, Law Division, Essex County (the "Superior Court").¹ For the reasons set forth below, the motion is granted.

Facts and Procedural History

The plaintiff, Mountain Ridge State Bank ("Mountain Ridge"), is a New Jersey banking corporation. FDIC Brief at 1. Mountain Ridge had entered into a two participation agreements with defendant Investor Funding Corporation ("IFC") whereby IFC transferred all of its rights and obligations with respect to numerous promissory notes (the "Notes") to Mountain Ridge. Id.

The Notes were executed by, among others, the Moving Defendants. Id.; Defendants' Brief at 1. The Moving Defendants claim the proceeds of the Notes were paid not to them directly, but to partnerships in which they had invested. Defendants' Brief at 1. The Moving Defendants claim they ceased to make payments due and owing under the Notes when they discovered that the partnerships were in fact part of "ponzi scheme" involving IFC and defendant John Kimble. Id.

Subsequently, Mountain Ridge commenced an action on 22 August 1989 in the Superior Court to recover for the Moving Defendants' default under the Notes. Id. at 2; FDIC Brief at 1. The Moving Defendants answered Mountain Ridge's complaint and asserted, among other things, the affirmative defenses of fraud and failure of consideration. Defendants' Brief at 2. On 4 October 1990, after a series of motions in the Superior Court, the defendants, represented by the law firm of Kudman & Trachten ("Kudman"), were granted leave to amend their answer to assert counterclaims against Mountain Ridge for rescission and restitution. Id. at 2-3.

On 5 October 1990, the Commissioner of Banking of the State of New Jersey declared Mountain Ridge insolvent and appointed and confirmed the FDIC as receiver pursuant to N.J.S.A. 17:9A-272(D).² Defendants' Brief at 3; FDIC Brief at 3-4. On the same day, the FDIC filed an ex parte application in the Superior Court pursuant to 12 U.S.C. § 1821(d)(12)³ for a ninety-day stay of all proceedings in the Superior Court to which Mountain Ridge was a party. FDIC Brief at 4; Defendants' Brief at 3. The FDIC's ex parte application was apparently made in a proceeding separate from the action to enforce the Notes. Defendants' Brief at 3; FDIC Brief at 3. The application for the stay, however, was heard by Hon. Paul B. Thompson, who was the Judge in the Superior Court before whom the action to enforce the Notes was pending. FDIC Brief at 3. Judge Thompson, by an Order, dated 9 October 1990, stayed until 3 January 1991 all cases or matters in the Superior Court in which Mountain Ridge was a party. FDIC Brief at 3; Defendants' Brief at 3. The Moving Defendants did not learn of the stay until 20 November 1990, when they received from the law firm of Wiley, Malehorn & Sirota ("Wiley") a copy of the Order granting a stay. FDIC Brief at Exhibit L.

It is apparent from various orders of the Superior Court that Wiley represented Mountain Ridge in this case in state court prior to the appointment of the FDIC. See FDIC Brief at Exhibits C, D, E & F. For example, in a letter-opinion, dated 4 October 1990, Judge Thompson declined to grant Mountain Ridge's motion for summary judgment. FDIC Brief at Exhibit G. The letter-opinion was addressed to Wiley. Id.

It does not appear Wiley had been formally retained by the FDIC to handle any Mountain Ridge litigation at the time Wiley sent a copy of the Order granting the stay to the Moving Defendants. By a letter sent to Wiley, dated 13 November 1990, the FDIC stated it was attempting to ascertain whether Wiley was qualified to represent the FDIC in the Mountain Ridge cases pending in the Superior Court. FDIC Brief at Exhibit K. Although that letter did not specifically refer to this case, the letter did state that Wiley should "continue to handle" the unspecified Mountain Ridge cases discussed in a meeting between Wiley and the FDIC on 7 November. Id.

On 24 December 1990, the FDIC directed Wiley to commence proceedings to remove this case from state to federal court. FDIC Brief at Exhibit M. The FDIC desired removal because it anticipated the defendants represented by Kudman would assert a counterclaim. Id. It is assumed that sometime in December 1990, Wiley was formally retained to continue as counsel for the FDIC on this matter. See Geppert Affidavit at ¶ 10.

On 3 January 1991, the FDIC filed its Notice of Removal with this court. On 15 January 1991, the parties appeared for a status conference at which time the parties discussed whether the removal from state to federal court was appropriate.⁴

Discussion

The Moving Defendants oppose removal of this case to federal court and seek remand to the Superior Court. The Moving Defendants contend removal is improper for several reasons. First, the Moving Defendants contend removal is precluded because this is a "state action" involving purely state law. Defendants' Brief at 6. Second, the Moving Defendants contend the notice of removal was untimely. Id. at 7. Third, they contend the stay was improperly obtained. Id. at 13. Last, the Moving Defendants contend this court should decline or defer exercise of jurisdiction because the Superior Court has retained jurisdiction to determine whether appointment of the FDIC as receiver was appropriate. Id. at 15. The FDIC disputes all of these contentions.

A. Removal Under 12 U.S.C. § 1819

1. Standard of Review

The FDIC may seek the removal from state to federal court of a case in which the FDIC is a party.⁵ 12 U.S.C. § 1819(b)(2)(B) (as amended by the Financial Institutions Reform, Recovery and Enforcement Act of 1989, Pub.L. No. 101-73, § 209, 103 Stat. 183 (1989) ("FIRREA"), codified, as amended, at 12 U.S.C. § 1819(b)(2)(B)). Any case in which the FDIC is a party has been deemed by Congress to arise, except in certain circumstances, under the laws of the United States.⁶ Id. at § 1819(b)(2)(A). An action does not arise under the laws of the United States when it is an action:

(i) to which the FDIC, in the FDIC's capacity as receiver of a State insured depository institution by the exclusive appointment by State authorities, is a party other than as a plaintiff;

(ii) which involves only the preclosing rights against the State insured depository institution, or obligations owing to, depositors, creditors, or stockholders by the State insured depository institution; and

(iii) in which only the interpretation of the law of such State is necessary.

Id. at § 1819(b)(2)(D). Section 1819(b)(2)(D) is not to be construed, however, to limit a federal court's jurisdiction when the State insured depository institution could have invoked the jurisdiction of federal courts in the action. 12 U.S.C. § 1819(b)(2)(E).

2. State Action Under 12 U.S.C. § 1819

The Moving Defendants contend that this action is excluded from removal because the counterclaims they have asserted turn this action into an action arising under state, not federal, law. Defendants' Brief at 7. This contention, however, has no merit.

There are few cases interpreting Section 1819(b)(2)(D). None of the cases directly address the relevant issue here or even the issue of whether each of the subsections must be met for removal to be barred. From the plain language of Section 1819(b)(2)(D), however, it appears each subsection must be met because subsection (ii) ends with an "and." See Bruce v. First Fed. Sav. & Loan Ass'n, 837 F.2d 712, 715 (5th Cir.1988) ("The word `and' is therefore to be accepted for its conjunctive connotation rather than as a word interchangeable with `or' except where strict grammatical construction will frustrate clear legislative intent."). Consequently, the Moving Defendants' assertion that this action is not removable on the basis of Section 1819(b)(2)(D) will fail if they cannot show any of the three subsections are met.

The Moving Defendants argue this action involves only state law and the preclosing rights of the Moving Defendants against Mountain Ridge on the Notes. Defendants' Brief at 6. Assuming that this action is indeed one involving only state law, the relevant issue then is whether the FDIC is a party other than plaintiff. 12 U.S.C. § 1819(b)(2)(D)(i).

The FDIC, as receiver, has succeeded to all the rights and obligations of Mountain Ridge. Bacsik Certification ...