Smart v. First Federal S & L Ass'n of Detroit

Decision Date15 September 1980
Docket Number80-71536,80-70169,Civ. No. 79-74483,80-71370,80-70246,80-71559,80-72028,80-70269,80-71530,80-70143,80-72336 and 80-72417.,80-71799,80-72269,80-72015,79-74646,79-74804,80-71816,80-71596,80-70101,80-72270,80-71863
Citation500 F. Supp. 1147
PartiesRobert SMART and Marilyn Smart, his wife, for themselves and on behalf of all Members of the Class of First Federal Savings & Loan Association of Detroit, Mortgagors from 1973 to 1979, Plaintiffs, v. FIRST FEDERAL SAVINGS & LOAN ASSOCIATION OF DETROIT, Defendant, et al. (see fn. for 21 other titles).
CourtU.S. District Court — Western District of Michigan

Michael J. McGivney, Brighton, Mich., for plaintiffs in No. 79-74483.

David M. Hayes, Detroit, Mich., for First Federal Savings & Loan Association of Detroit.

Paul M. Mandel, Pontiac, Mich., for plaintiffs in No. 79-74646.

Roger K. Timm, Detroit, Mich., for First Federal Savings & Loan Association of Detroit, and First Federal Savings & Loan Association of Lenawee County.

Paul A. Longton, Wyandotte, Mich., for defendants in No. 79-74804 and plaintiffs in No. 80-70269.

Harvey A. Koselka, Adrian, Mich., for defendants in No. 80-70101 and plaintiff in No. 80-70143.

James B. Arnold, Troy, Mich., for plaintiffs in No. 80-70169.

Robert F. Potere, Rochester, Mich., for the Taylors.

William E. Clark, Jr., Southfield, Mich., for plaintiffs in No. 80-70246.

Andree DuFresne, Detroit, Mich., for plaintiffs in No. 80-70269.

Edward M. Ranger, Detroit, Mich., for Trustees, Walter Jones, Sandra Jones, Samuel and Rosemarie Chiado, and plaintiffs in Nos. 80-71370, 80-71530, 80-71816 and 80-72417.

Owen J. Cummings, Livonia, Mich., for plaintiffs in No. 80-71536.

Donald M. Churilla, Sterling Heights, Mich., for plaintiffs in No. 80-71559.

Imants M. Minka, Carl G. Becker & Associates, Southfield, Mich., for plaintiffs in No. 80-71596.

Leslie S. Chernikov, Detroit, Mich., for plaintiffs in No. 80-71799.

William M. Schlecte, Ann Arbor, Mich., for plaintiffs in No. 80-71863.

John A. Dolan, Mt. Clemens, Mich., for plaintiffs in No. 80-72015.

Robert S. Bolton, Mark T. Peters, Butzel, Keidan, Simon, Myers & Graham, Detroit, Mich., for Detroit Federal Savings & Loan Association and defendants in No. 80-72269.

Erwin B. Ellmann, Southfield, Mich., for Sheldon and Miriam Sandweiss and Sheldon Investment Co.

John C. Huget, Sterling Heights, Mich., for John and Norma Croat.

Philip A. Jaffe, Southfield, Mich., for BKG Management II.

Robert V. Parenti, Lake Orion, Mich., for plaintiffs in No. 80-72336.

H. Hudson Mead, Detroit, Mich., for defendant in No. 80-72417.

Harvey Simon, Federal Home Loan Bank Board, Washington, D. C., Lawrence J. Stockler, Detroit, Mich., Gregory L. McClelland, Harry G. Iwasko, Jr., Asst. Atty. Gen., Lansing, Mich., for amicus curiae.

OPINION

GUY, District Judge.

Pursuant to Local Court Rule XXIV, which governs the assignment of similar or related cases in this district, this court has been assigned twenty-two cases involving the validity and enforceability of the "due on sale" clauses1 contained in certain mortgage agreements commonly used by federal savings and loan associations. All of the cases seek declaratory judgment relative to such clauses. Of the twenty-two cases filed, eighteen have been instituted by mortgagors and four have been commenced by federal savings and loan associations (hereinafter referred to as federal associations). Fifteen of the eighteen cases filed by mortgagors were started in state court and subsequently removed to this court pursuant to 28 U.S.C. § 1441. The other three mortgagor suits and the four mortgagee actions initially were filed as declaratory judgment actions pursuant to the provisions of 28 U.S.C. § 2201 in this court.

All of the cases initially filed in state court challenge the validity and exercisability of due on sale clauses either under real property law theories or on contractual grounds, or both. More specifically, the state complaints assert that due on sale clauses are unreasonable restraints on alienation and that they are therefore unenforceable. Although not all of the complaints specifically mention it, it is clear that the mortgagors' substantive claims are for the most part an outgrowth of a decision of the Michigan Court of Appeals in Nichols v. Ann Arbor Federal Savings and Loan Association and Kempf v. Ann Arbor Federal Savings and Loan Association, 73 Mich.App. 163, 250 N.W.2d 804 (1977), in which the court held that due on sale clauses were restraints on the ability of mortgagors to alienate property and that unless the lender could demonstrate that resort to such clauses was reasonably necessary to protect the lender against the impairment of its security or the risk of default, the clause was invalid and unenforceable.2

Several of the complaints also suggest that, as a matter of fundamental contract law, the specific type of sales arrangements made to dispose of property subject to mortgages containing due on sale clauses were excluded from the terms of the clause. Typical of such allegations are those found in Cross v. Taylor, No. 80-70169. In Cross, plaintiffs allege that the executory land contract they entered into with their prospective purchasers created a "lien or encumbrance subordinate to the mortgage and, therefore, is not violative of the due on sale clause." Complaint at ¶ 9.

Rather than answer the cases in state court, the federal associations chose to remove them to United States District Court pursuant to 28 U.S.C. § 1441(b). They justified their removal in all of the cases on the ground that this court had original federal question jurisdiction over the cases under 28 U.S.C. § 1331 and 28 U.S.C. § 1337, asserting that "by virtue of the fact that plaintiffs' Complaints rest ... on federal law as expressed in the Home Owners' Loan Act of 1933, 12 U.S.C. § 1461, et seq., which preempts any state regulation of the lending practices of federal savings and loan associations, the complaints ... present ... federal questions ...."

The associations' position on the merits in these cases is that applicable federal regulations authorize the use of due on sale clauses in mortgages and that such regulations preempt state law to the contrary. Specifically, the associations point to a regulation which became effective on June 8, 1976, which provides in part as follows:

A federal association continues to have the power to include, as a matter of contract between it and the borrower, a provision in its loan instruments whereby the association may, at its option, declare immediately due and payable all of the sums secured by the association's security instrument if all or any part of the real property securing the loan is sold or transferred by the borrower without the association's prior written consent. Except as provided in paragraph (6) of this section ... exercise by an association of such an acceleration option (hereafter called a due-on-sale clause) shall be governed exclusively by the terms of the contract between the association and the borrower ....

12 C.F.R. § 545.6-11(f). Several cases have found that this regulation preempts all state law inconsistent therewith, most notably Glendale Federal Savings and Loan Association v. Fox, 459 F.Supp. 903 (C.D.Cal. 1978).

Shortly after the first set of cases was removed to this court, two motions to remand were filed in which plaintiffs challenged the proposition that their claims arose under federal law. The motions to remand asserted that under the clear weight of authority their claims did not "arise under the Constitution, laws, or treaties of the United States," 28 U.S.C. § 1331(a) and 28 U.S.C. § 1337, and asserted that any federal questions presented by their cases were raised merely as a defense to state created causes of action.

Pursuant to the filing of the motions to remand, a hearing was set in Mandel v. First Federal Savings and Loan Association of Detroit, No. 79-74646, and Jones v. First Federal Savings and Loan Association of Detroit, No. 80-71530. Following oral arguments, the court took the remand motions under advisement.3

After reviewing all of the materials filed in connection with the motions to remand and the oral arguments of counsel on the question, the court has concluded that it does not have subject matter jurisdiction over any of the cases initially filed in state court and that it must remand all of them back to state court as a result of their having been improvidently removed.

REMAND

All of the cases initially started in state court were removed to this court pursuant to 28 U.S.C. § 1441, which provides as follows:

(a) Except as otherwise expressly provided by Act of Congress, any civil action brought in a State court of which the district courts of the United States have original jurisdiction, may be removed by the defendant of the defendants, to the district court of the United States for the district and division embracing the place where such action is pending.

Subsection (b) sets forth the types of cases that may be removed:

(b) Any civil action of which the district courts have original jurisdiction founded on a claim or right arising under the Constitution, treaties or laws of the United States shall be removable without regard to the citizenship or residence of the parties. Any other such action shall be removable only if none of the parties in interest properly joined and served as defendants is a citizen of the State in which such action is brought.

Since there is no diversity of citizenship between the parties, the question whether these cases were properly removed must be decided on the basis of whether they are within the original jurisdiction of this court under 28 U.S.C. § 1331 (federal question jurisdiction) or 28 U.S.C. § 1337 (cases arising under federal laws regulating commerce). Part (a) of § 1331 provides:

(a) The district courts shall have original jurisdiction of all civil actions wherein the
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