Rettig v. Arlington Hgts. Fed. Sav. & Loan Ass'n

• Decision Date: 10 June 1975
• Docket Number: 74 C 3222 and 75 C 407.,74 C 3221,No. 74 C 3151,74 C 3151
• Citation: 405 F. Supp. 819
• Court: U.S. District Court — Northern District of Illinois
• Parties: Lenore RETTIG, Plaintiff, v. ARLINGTON HEIGHTS FEDERAL SAVINGS AND LOAN ASSOCIATION et al., Defendants. Bernyce R. WALD, Plaintiff, v. CHICAGO FEDERAL SAVINGS & LOAN ASSOCIATION et al., Defendants. Shelvin SINGER and Gloria Singer, Individually and on behalf of a class, Plaintiffs, v. CHICAGO FEDERAL SAVINGS & LOAN ASSOCIATION et al., Defendants. Benjamin J. COHEN and Bernice Cohen, Plaintiffs, v. COOK COUNTY FEDERAL SAVINGS & LOAN ASSOCIATION, a Federal Savings and Loan Association, et al., Defendants.

405 F. Supp. 819

Lenore RETTIG, Plaintiff, v. ARLINGTON HEIGHTS FEDERAL SAVINGS AND LOAN ASSOCIATION et al., Defendants.

Bernyce R. WALD, Plaintiff, v. CHICAGO FEDERAL SAVINGS & LOAN ASSOCIATION et al., Defendants.

Shelvin SINGER and Gloria Singer, Individually and on behalf of a class, Plaintiffs, v. CHICAGO FEDERAL SAVINGS & LOAN ASSOCIATION et al., Defendants.

Benjamin J. COHEN and Bernice Cohen, Plaintiffs, v. COOK COUNTY FEDERAL SAVINGS & LOAN ASSOCIATION, a Federal Savings and Loan Association, et al., Defendants.

Nos. 74 C 3151, 74 C 3221, 74 C 3222 and 75 C 407.

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

June 10, 1975.

COPYRIGHT MATERIAL OMITTED

John A. Doyle, Ltd., Chicago, Ill., for plaintiff.

Barnabas F. Sears, James N. Kosmond, T. D. Roti, Boodel, Sears, Sugrue, Giambalvo & Crowley, Chicago, Ill., for defendants Morton, Jannon, Ovath, Gilbert, Schaeffer, Klehm, Sponer and Benson.

Leon Lecour Dolet and E. F. McDonnell, Jr., Anderson, Dolet & McDonnell, Oscar Marquis and Wm. R. Verhuel, Chicago, Ill., for Arlington Heights Fed. Sav. and Arlington Agency, Inc.

MEMORANDUM OPINION

WILL, District Judge.

The four lawsuits currently pending before this court, Leonore Rettig v. Arlington Heights Federal Savings and Loan Association, et al., No. 74 C 3151; Bernyce R. Wald v. Chicago Federal Savings & Loan Association, et al., No. 74 C 3221; Shelvin Singer, et al. v. Chicago Federal Savings & Loan Association, et al., No. 74 C 3222; and Benjamin J. Cohen, et al. v. Cook County Federal Savings & Loan Association, et al., No. 75 C 407; are evidently all part of the wave of such suits that were filed in the Circuit Court of Cook County, Illinois, following the Illinois Supreme Court's decision in Kerrigan v. Unity Savings Ass'n., 58 Ill.2d 20, 317 N.E.2d 39 (1974). The court there held that the directors of a state savings and loan association had improperly diverted a corporate opportunity open to the association as well as breached their fiduciary duties by causing individual borrowers to be referred to a director-controlled insurance agency to procure necessary insurance in connection with their loans.

The plaintiffs in each of the instant cases are savings account depositors in their respective associations. They bring suit on their own behalf, on behalf of all depositors, and derivatively on behalf of the association against the association, its officers and directors, and the insurance agencies involved, charging, inter alia, that each defendant association in connection with its loans, places homeowners', fire, theft, and other types of insurance, through the defendant insurance agencies owned by the defendant directors and officers. Since each association was at all relevant times allegedly authorized to sell such insurance through a service corporation, or a subsidiary of a service corporation, the plaintiffs contend that the defendant directors and officers fraudulently diverted to themselves a business opportunity available to the association, and thereby breached their fiduciary duty to the association.

The plaintiffs seek, among other relief, an accounting and an order compelling the defendant insurance agencies and the individual defendants to return all commissions and fees allegedly diverted or misappropriated from the associations. There is a conspicuous absence in plaintiffs' state court complaints of any reference to federal statutes or regulations, except the mention that the defendant associations are federal savings and loan associations chartered by the Federal Home Loan Bank Board (Board), pursuant to the Home Owners' Loan Act (HOLA), as amended, 12 U.S.C. § 1461 et seq., and that the rules and regulations of the federal savings and loan system, together with each association's charter and by-laws, prescribe that the business and affairs of each association shall be exercised by its board of directors and officers.

The defendants in each of these cases have removed to this court pursuant to 28 U.S.C. § 1441 (a) and (b), basing federal jurisdiction upon 28 U.S.C. §§ 1331 and 1337. They allege that the plaintiffs' cause of action "arises under" the provisions of the HOLA, and that interpretation of the Act, the federal charter, and the rules and regulations of the Board, will be required for a full adjudication. The plaintiffs have responded by moving to have the cases remanded to the state court. Urging that the plaintiffs' right to select their own forum should not be upset in these cases, plaintiffs contend that they have purposely asserted their rights under the applicable state law, and that the complaints do not present any claim or right arising under the Constitution, treaties or laws of the United States within the meaning of 28 U.S.C. §§ 1331 or 1337. They further argue that federal law is merely ancillary to the major thrust of the lawsuit, that, at best, federal regulations pertaining to corporate opportunity and fiduciary duties are mere reiteration of state law, and that in any event, state courts are empowered to apply federal law.

REMOVAL JURISDICTION

Whether a lawsuit is removable under 28 U.S.C. § 1441 depends upon whether the cause of action arises under the Constitution or laws of the United States. As the plaintiffs correctly point out, the alleged federal statutory violation must be an essential element of the cause of action, and may not be set forth in an ancillary fashion or by way of defense. Gully v. First National Bank in Meridian, 299 U.S. 109, 57 S.Ct. 96, 81 L.Ed. 70 (1936). The controversy generally must be disclosed on the face of the complaint, unaided by defendants' answer or petition for removal. Skelly Oil Co. v. Phillips Petroleum Co., 339 U.S. 667, 70 S.Ct. 876, 94 L.Ed. 1194 (1950); Crow v. Wyoming Timber Products Co., 424 F.2d 93 (10th Cir. 1970). Provided concurrent jurisdiction exists, the plaintiff, by strategically framing the allegations of the complaint, has the right to choose the status of his case regarding removability. Crow, supra. As Moore explains: 1A Moore's Federal Practice 474:

. . . where plaintiffs' claim involves both a federal ground and a state ground, the plaintiff is free to ignore the federal question and pitch his claim on the state ground.

The plaintiff, however, may not defeat removability by attempting to draft the complaint around what is essentially a federal cause of action. According to Moore, 1A Moore's Federal Practice 474-475:

A suit may, however, be removed, where the real nature of the claim asserted in the complaint is federal, irrespective of whether it is so characterized; or where the plaintiff inadvertently, mistakenly, or fraudulently conceals the federal question that necessarily would have appeared if the complaint had been well pleaded.

The court therefore may look beyond the verbiage of the state court complaint to the substance of plaintiffs' claimed grievance, and may, where appropriate, properly take judicial notice of any federal laws necessarily brought into play. Ulichny v. General Electric Co., 309 F. Supp. 437 (N.D.N.Y.1970); LaChemise Lacoste v. The Alligator Co., 313 F. Supp. 915 (D.Del.1970); Sylgab Steel & Wire Corp. v. Strickland Transportation Co., 270 F.Supp. 264 (E.D.N.Y.1967); S. E. Overton Co. v. International Brotherhood of Teamsters, Chauffers, Warehousemen & Helpers of America, AFL, 115 F.Supp. 764 (W.D.Mich.1953). Where federal substantive law is found to be controlling either by reason of the exclusive jurisdiction of the federal courts, or federal preemption, the suit is properly removable. Minkoff v. Scranton Frocks, Inc., 172 F.Supp. 870 (S.D. N.Y.1959); Fay v. American Cystoscope Makers, 98 F.Supp. 278 (S.D.N.Y.1951).

Focusing upon these guiding principles, the primary question before the court, then, is whether federal law covering the alleged diversion of corporate opportunity and breach of fiduciary duty by directors and officers of federal saving and loan associations has supplanted the state common law relied upon by the plaintiffs. For the reasons set forth hereinafter, we find that the Board's rules and regulations augmented by federal common law has preempted the field, that, as a result, plaintiffs' cause of action does involve questions of controlling and overriding federal law, and defendants are, therefore, entitled to remove to the federal court.

FEDERAL PREEMPTION

Federal savings and loan associations are instrumentalities and agencies of the United States, United States v. Harper, 241 F.2d 103 (7th Cir. 1957); First Federal Savings and Loan Ass'n v. Loomis, 97 F.2d 831 (7th Cir. 1938), created as part of a nationwide network of mutual thrift institutions to provide a safe place for people to invest their money and to acquire financing for homes. These federal associations are chartered by the Board in accordance with the HOLA, 12 U.S.C. § 1461 et seq. which authorizes the Board, "under such rules and regulations as it may prescribe, to provide for the organization, incorporation, examination, operation and regulation of such institutions." Pursuant to this authority, the Board has promulgated comprehensive rules and regulations, "covering all aspects of every federal savings and loan association from its cradle to its corporate grave." Kupiec v. Republic Federal Savings and Loan Association, 512 F.2d 147 at 149 (7th Cir. decided March 4, 1975) citing Meyers v. Beverly Hills Federal Savings & Loan Ass'n, 499 F.2d 1145, 1147 (9th Cir.1974).

By virtue of the plenary powers vested in the Board by the HOLA, the courts have consistently recognized the congressional intent to have federal law govern the regulation and supervision of federal associations. Lyons Savings and Loan Association v. Federal Home Loan Bank Board, 377 F. Supp. 11, 17 (N.D.Ill.1974); People v. Coast Federal Savings & Loan Association, 98 F.Supp. 311 (S.D.Cal.1951). The cases are legion which hold that this preemptive delegation of authority to the Board extends to...