Pacific Mut. Life Ins. v. American Nat. Bank, 86 C 0203.

• Decision Date: 19 June 1986
• Docket Number: No. 86 C 0203.,86 C 0203.
• Parties: PACIFIC MUTUAL LIFE INSURANCE COMPANY, a California Corporation, and the Paul Revere Life Insurance Company, a Pennsylvania Corporation, Plaintiffs, v. AMERICAN NATIONAL BANK AND TRUST COMPANY OF CHICAGO, As Trustee, Arlington Place Partners, Arlington Place II Limited Partnership, Douglas W. Dodds, P. Schubert and Sons, Inc., V.A. Smith Company and Harry Yourell, Defendants.
• Court: U.S. District Court — Northern District of Illinois

642 F. Supp. 163

PACIFIC MUTUAL LIFE INSURANCE COMPANY, a California Corporation, and the Paul Revere Life Insurance Company, a Pennsylvania Corporation, Plaintiffs, v. AMERICAN NATIONAL BANK AND TRUST COMPANY OF CHICAGO, As Trustee, Arlington Place Partners, Arlington Place II Limited Partnership, Douglas W. Dodds, P. Schubert and Sons, Inc., V.A. Smith Company and Harry Yourell, Defendants.

No. 86 C 0203.

United States District Court, N.D. Illinois, E.D.

June 19, 1986.

Eric A. Oesterle, Sonnenschein, Carlin, Nath & Rosenthal, Lionel G. Gross, Altheimer & Gray, Chicago, Ill., for plaintiffs.

John Klich, Joseph Sanders, Chicago, Ill., Dennis Buyer, Buyer & Scherb, Niles, Ill., Thomas D. Decker, Chicago, Ill., for defendants.

MEMORANDUM OPINION AND ORDER

ASPEN, District Judge:

This is a mortgage foreclosure suit with jurisdiction initially based on diversity of citizenship. Plaintiffs later amended their complaint to add the United States as a party defendant. Some of the defendants¹ moved to dismiss the entire suit, arguing that the presence of the United States in the suit destroyed the Court's jurisdiction over the subject matter. Plaintiffs responded by seeking leave to file a second amended complaint, which is like the first amended one, except that it adds some beef to jurisdictional allegations. Defendants oppose this motion, raising the same jurisdictional arguments. For the reasons stated below, the Court finds that it has jurisdiction over the case. Accordingly, plaintiffs' motion to amend will be granted and defendants' motion to dismiss denied.

The plaintiffs are citizens of California and Massachusetts. The original defendants are all citizens of Illinois. Everyone agrees that this complete diversity of citizenship empowered the Court under 28 U.S.C. § 1332(a)(1) to hear the suit as originally filed. The original defendants include the mortgagor of the property in dispute, as well as corporations with liens on the property. After filing the suit, plaintiffs learned that the United States had placed three revenue liens against defendant Douglas Dodds under 26 U.S.C. § 6321. Dodds is the general partner of a limited partnership (defendant Arlington Place Partners) which in turn is the general partner of another limited partnership (defendant Arlington Place II Limited Partnership), which is the sole beneficiary of a land trust (run by defendant-trustee American National Bank) holding title to the property in dispute. If the United States has any rights at all in the property, they apparently run somehow via Dodds through the maze of partnerships we just obliquely summarized. In order to ensure that it can pass clear title at a foreclosure sale (assuming its foreclosure is successful), plaintiffs joined the United States as a defendant to determine the validity and priority of these revenue liens.

Defendant's original motion to dismiss argued that the joinder of the United States destroyed the complete diversity of citizenship. Because the United States or one of its agencies is not a "citizen" of any state under § 1332, it cannot be sued in federal court solely on the basis of diversity jurisdiction. See Brumfield v. National Flood Insurance Program, 492 F.Supp. 1043, 1044 (M.D.La.1980); Jizmerjian v. Department of Air Force, 457 F.Supp. 820, 822 (D.S.C.1978), aff'd, 607 F.2d 1001 (4th Cir.1979), cert. denied, 444 U.S. 1082, 100 S.Ct. 1036, 62 L.Ed.2d 766 (1980); Monsanto Co. v. TVA, 448 F.Supp. 648, 650 (N.D. Ala.1978); McGlynn v. Employers Commercial Union Ins. Co. of America, 386 F.Supp. 774, 776 (D.P.R.1974); Darling v. United States, 352 F.Supp. 565, 567 (E.D. Cal.1972). However, this case differs from these other cases in one significant respect: contrary to defendants' rather lame and unsupported argument, this Court quite clearly has independent jurisdiction over the claim against the United States under 28 U.S.C. § 1340,² since the suit to determine the validity and priority of the federal lien turns on and arises under federal tax laws, namely 26 U.S.C. § 6323. See, e.g., United States v. Creamer Industries, Inc., 349 F.2d 625, 627 (5th Cir.1965), cert. denied, 382 U.S. 957, 86 S.Ct. 434, 15 L.Ed.2d 361 (1965); United States v. Coson, 286 F.2d 453, 455-56 (9th Cir.1961); 14 C. Wright, A. Miller & E. Cooper, Federal Practice and Procedure (2d Ed. 1985), § 3656 at 263 (and additional cases cited therein). We thus conclude that we have federal question jurisdiction over the suit to the extent it is addressed to the United States. But this conclusion yields an issue not thoroughly addressed by the parties: does the proper and independent presence of the United States in the suit destroy diversity with respect to the other parties, such that the claims against them must be dismissed for lack of subject matter jurisdiction? The parties did not specifically discuss what would happen if we would agree with defendants that the United States normally is not subject to diversity jurisdiction, but also agree with plaintiff that federal question jurisdiction exists over the claim against the United States.

Apparently only a few cases discuss this issue, and superficially at that. See Guttman v. United States, 196 F.Supp. 384 (E.D.N.Y.1961); Tompkins v. United States, 172 F.Supp. 204 (S.D.Tex.1959). These cases turn on construction of 28 U.S.C. § 2410(a), which provides in relevant part:

(a) Under the conditions prescribed in this section and section 1444 of this title for the protection of the United States, the United States may be named a party in any civil action or suit in any district court, or in any State court having jurisdiction of the subject matter —

(1) to quiet title to,

(2) to foreclose a mortgage or other lien upon,

(3) to partition,

(4) to condemn, or

(5) of interpleader or in the nature of interpleader with respect to,

real or personal property on which the United States has or claims a mortgage or other lien.

These cases agree with the great weight of authority, which we also follow because it is clearly correct, that § 2410 does not independently create jurisdiction over the suit against the United States; rather, it merely waives sovereign immunity, meaning that jurisdiction must be found elsewhere. See, e.g., Wells v. Long, 162 F.2d 842, 844 (9th Cir.1947); 14 Wright, Miller & Cooper, § 3656 at 263 (and cases cited therein). Both Guttman and Tompkins recognize this principle, but go on to hold that the United States may properly be joined under § 2410 to a suit to quiet title or foreclose a mortgage so long as subject matter jurisdiction exists as to the rest of the suit. Specifically, those cases state that this is so if there is complete diversity as to the rest of the parties, without regard to the presence of the United States. This analysis is troubling, since neither case discusses the principle that the United States is not a "citizen" under § 1332. Neither case therefore discusses whether the presence of the United States destroys diversity. Moreover, neither case discussed whether an independent basis of jurisdiction existed over the claim against the United States (although § 1340 probably would have provided that basis). Nevertheless, we think the result of these cases is correct.

Essentially, these cases rest on one construction of § 2410(a). The section allows the United States to be joined to a foreclosure suit in a court "having jurisdiction of the subject matter." The quoted words can be read two ways. One, the way Guttman and Tompkins implicitly read them, is that so long as a court already has subject jurisdiction matter of a foreclosure suit, without regard to the United States, the United States can be added to that suit. "Having jurisdiction of the subject matter" means having it without counting the United States. Under this reading, § 2410 does not "create" jurisdiction. Rather, its invocation does not disturb diversity jurisdiction otherwise existing. That is, the statute allows the United States to jump into a suit already in federal court. Under a second reading, the court must have "jurisdiction of subject matter of the suit," taking the presence of the United States fully into account, especially with respect to diversity. Under this reading, the presence of the United States could destroy diversity.

We adopt a third reading which is closer to the first one, but draws from both positions: so long as an independent basis of jurisdiction exists over the claim against the United States, § 2410 allows the United States to be joined to a foreclosure suit without destroying the diversity jurisdiction which existed over the rest of the suit. This result is consistent with the language of § 2410, as well as with its overall scheme. The statute explicitly mentions that it waived immunity "for the protection of the United States." To fulfill this purpose, it envisions that the United States will become party to foreclosure suits which the United States has a vested interest in. It envisions litigation of all claims in one forum, and does not, we think, seek to disturb the usual relation of the parties otherwise present. It merely seeks to let the United States easily into a fray which it belongs in. As long as such a suit is "federal" already, such that subject matter jurisdiction exists with respect to the other parties and to the United States, the United States can properly have the easy access the statute envisions. Thus, we read the words, "the United States may be named a party in any civil action or suit in any district court ... having jurisdiction over the subject matter," to mean that the United States can be part of a suit where the court properly and independently has jurisdiction without regard to the United States and where it has independent federal jurisdiction over the claim involving the United States. In this way the statute does not create jurisdiction; it simply works like a rule of joinder. Because as we have seen, we have...