New Rock Asset Partners, L.P. v. Preferred Entity Advancements, Inc.

• Decision Date: 10 December 1996
• Docket Number: No. 95-5306,95-5306
• Citation: 101 F.3d 1492
• Parties: NEW ROCK ASSET PARTNERS, L.P. v. PREFERRED ENTITY ADVANCEMENTS, INC.; Daml Realty Corp; Alexander Dilorenzo, III; Estates of Sol Goldman; State of New Jersey. Preferred Entity Advancements, Inc., and DAML Realty Corp., Appellants.
• Court: U.S. Court of Appeals — Third Circuit

Page 1492

101 F.3d 1492

65 USLW 2402

NEW ROCK ASSET PARTNERS, L.P. v. PREFERRED ENTITY ADVANCEMENTS, INC.; Daml Realty Corp Alexander Dilorenzo, III; Estates of Sol Goldman State of New Jersey Preferred Entity Advancements, Inc., and DAML Realty Corp. Appellants.

No. 95-5306.

United States Court of Appeals, Third Circuit.

Argued on Dec. 13, 1995.

Decided Dec. 10, 1996.

Deborah A. Silodor (argued), Solomon and Weinberg, Hackensack, NJ, for Appellee.

Gregory R. Haworth (argued), Carl A. Rizzo, Christine R. Smith, Cole, Schotz, Meisel, Forman & Leonard, Hackensack, NJ, for Appellants.

Before: ROTH, LEWIS and McKEE, Circuit Judges.

OPINION OF THE COURT

ROTH, Circuit Judge:

This appeal presents a series of jurisdictional questions. The underlying dispute is a state law claim involving a mortgage foreclosure action. It gained entry to the federal system via the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA), Pub.L. No. 101-73, 103 Stat. 183 (1989), which extends federal jurisdiction to "any civil action, suit, or proceeding to which the [Resolution Trust Corporation (RTC) ] is a party." 12 U.S.C. § 1441a(l)(1). Invoking this provision, the RTC filed suit in federal court, seeking foreclosure and related relief on various mortgages. The RTC subsequently sold its interest in the underlying loans and was dismissed from the case. The district court entered summary judgment against the debtor, who appeals on the ground that federal jurisdiction failed when the RTC was dismissed.

We will consider in turn the three jurisdictional issues raised by the parties. We begin by rejecting a mootness challenge to our appellate jurisdiction. We next determine that we do not have continuing jurisdiction under § 1441a(l)(1). We then reject the invocation of the "black letter rule" that jurisdiction is only determined at the time of the filing of the complaint. We conclude, however, by looking to the supplemental jurisdiction statute, 28 U.S.C. § 1367. Because we find that this particular case should fall within the supplemental jurisdiction of the district court, we will affirm the grant of summary judgment, even though we found that jurisdiction under § 1441a(l)(1) had terminated.

I.

On December 23, 1987, Preferred Entity Advancements, Inc., ("Preferred Entity") and DAML Realty Corp. ("DAML") executed and delivered to BRT Realty Trust ("BRT") five promissory notes in the original amounts of $67,965,270; $9,447,920; $2,880,151; $706,659; and $4,000,000. These notes were secured by mortgages on tracts of land in New Jersey and New York. On the same date, BRT assigned a 95% interest in the loan to FarWest Savings and Loan Association ("FarWest").

The Notes and Mortgages contained clauses providing for acceleration and foreclosure in the event of default. On or about March 1, 1991, Preferred Entity and DAML defaulted on their obligations. Meanwhile, on February 15, 1991, the RTC had been appointed receiver for FarWest. On June 18, 1991, BRT and the RTC filed an action in the Superior Court of New Jersey, Chancery Division, Hudson County, seeking foreclosure and related relief on the mortgages secured by New Jersey property.

On September 23, 1992, the RTC acquired BRT's remaining 5% interest in the loan. The RTC then dismissed the New Jersey action and, on July 30, 1993, filed this suit in the United States District Court for the District of New Jersey. Jurisdiction rested on 12 U.S.C. § 1441a(l), ¹ which grants the federal courts jurisdiction over any proceeding to which the RTC is a party.

No discovery or further action took place. On October 5, 1994, New Rock Asset Partners, L.P., ("New Rock") acquired all of the RTC's right, title, and interest in the loans and mortgages. On December 9, 1994, New Rock filed an Amended Complaint stating, inter alia:

1. The Jurisdiction of this Court is invoked pursuant to the Financial Reform, Recovery, and Enforcement Act of 1989, 12 U.S.C. § 1441a(l).

....

3. Plaintiff, New Rock, is the sole owner and holder of all right, title and interest in the Indebtedness (as defined herein) and the right to repayment thereof, together with all of the collateral security granted for repayment of the Indebtedness, pursuant to the Mortgage Assignments (as defined herein).

....

31. New Rock has succeeded to all of RTC's right, title and interest in the Rent Order [obtained against defendants in a previous state court action].

App. at 28-29, 35. On December 14, 1994, New Rock obtained an order substituting itself as plaintiff and dismissing the RTC from the case.

Two day later, New Rock moved for partial summary judgment and final judgment of foreclosure. Preferred Entity responded by contesting subject matter jurisdiction and the certifications on which New Rock based its summary judgment motion. New Rock then supplemented its motion with additional certifications. The district court denied Preferred Entity's jurisdictional challenge and granted New Rock's summary judgment motion. Preferred Entity appealed.

Since the filing of the appeal, New Rock has executed on its judgment and purchased the New Jersey property at a sheriff's sale conducted on August 10, 1995, by the Sheriff's Office for Hudson County. New Rock is currently pursuing various actions in New York state courts to foreclose on the New York properties.

II.

The propriety of federal court jurisdiction forms the nub of this case. The district court asserted jurisdiction based solely on 12 U.S.C. § 1441a(l). We exercise appellate jurisdiction over the district court's judgment and final order pursuant to 28 U.S.C. § 1291. Our review of the district court's jurisdictional determinations is plenary. Wujick v. Dale & Dale, Inc., 43 F.3d 790, 792 (3d Cir.1994).

III.

A.

We will first address New Rock's argument that this appeal has been "mooted in part" because the subject property has been purchased at foreclosure sale and the validity of the foreclosure sale can no longer be disputed. New Rock combines this argument with a citation to our decision in National Iranian Oil Co. v. Mapco Int'l, Inc., 983 F.2d 485 (3d Cir.1992), contending that this appeal is not moot as to the judgement's collateral estoppel and res judicata effects. This "moot in part, yet not moot in part" argument represents a fundamental misunderstanding of mootness doctrine and National Iranian Oil. We will attempt to clarify the matter.

In arguing mootness because of the foreclosure sale, New Rock relies on a Seventh Circuit case, Federal Deposit Ins. Corp. v. Meyer, 781 F.2d 1260 (7th Cir.1986), which states the rule in the Seventh Circuit: "In the absence of a stay of the enforcement of a judgment, if a district court judgment authorizes the sale of property and the property is sold to a good faith purchaser during the pendency of the appeal, the sale of property moots the appeal...." Id. at 1263. In the case before us, foreclosure and sale have taken place. New Rock contends that this aspect of the appeal is therefore moot. We do not agree.

We in the Third Circuit have never addressed the issue of whether foreclosure and sale, purely and simply, would render an appeal moot. It is possible that we might come to that conclusion in an appropriate case after examining the full effects on the dispute of such a foreclosure and sale. But, before so concluding, our precedents require that we first determine if there is still the possibility of granting any effective relief. See National Iranian Oil, 983 F.2d at 489 ("A case is not moot if there is a real and substantial controversy admitting of specific relief through a decree of conclusive character") (citations omitted); In re Joshua Slocum, Ltd., 922 F.2d 1081, 1085-86 (3d Cir.1990) (declining to moot appeal in landlord-tenant dispute where landlord failed to obtain stay; court could still grant effective relief); Main Line Fed. Sav. & Loan Ass'n v. Tri-Kell, Inc., 721 F.2d 904, 907 (3d Cir.1983) ("the determination that a case is moot requires that there be nothing gained by reaching a decision"); see also New Jersey Turnpike Auth. v. Jersey Cent. Power & Light, 772 F.2d 25, 30 (3d Cir.1985) (discussing mootness in terms of inability to grant effective relief). If effective relief can be granted, then this appeal is not moot.

We have commented in dictum on the possibility of effective relief remaining when a party has challenged a court's jurisdiction over a judgment used to foreclose property. In Raymark Indus., Inc. v. Lai, 973 F.2d 1125 (3d Cir.1992), we rejected the plaintiff's contention that because money that the defendant had posted in lieu of a supersedeas bond had been disbursed, meaningful relief was precluded and the defendant's appeal was moot. We noted that if the state court order was improper and void ab initio, then the defendant could seek to "undo the harm it suffered." Id. at 1128. We analogized the defendant's position

to that of an appellant who has not obtained a stay of execution on the underlying judgment pending appeal when the appellee executes on its judgment while the appeal is pending. The execution does not render the appeal moot since a reversal would allow the appellant to seek either a money judgment or return of the funds or property seized in the execution.

Id. at 1129. This situation is similar to the case before us.

Applying the effective relief test, we have little difficulty finding this appeal justiciable. If the district court lacked subject matter jurisdiction and its order were void ab initio, then as indicated in Raymark, Preferred Entity could seek a variety of relief both by attempting to recover damages for the seizure of the New Jersey property and by resisting the foreclosure action in New York. Given this potential for an effective remedy, the current appeal is not moot.

Because we find that the foreclosure sale has not mooted the appeal, we do not need to address New Rock's "partial mootness" theory. New Rock would...