Wolfson v. Artisans Sav. Bank

• Decision Date: 24 March 1977
• Docket Number: Civ. A. No. 76-179.
• Citation: 428 F. Supp. 1315
• Parties: Nathan WOLFSON et al., Plaintiffs, v. ARTISANS SAVINGS BANK et al., Defendants.
• Court: U.S. District Court — District of Delaware

428 F. Supp. 1315

Nathan WOLFSON et al., Plaintiffs, v. ARTISANS SAVINGS BANK et al., Defendants.

Civ. A. No. 76-179.

United States District Court, D. Delaware.

March 24, 1977.

COPYRIGHT MATERIAL OMITTED

Frederick Knecht, Jr., Knecht, Greenstein & Berkowitz, Wilmington, Del., Arnold Levin and Gordon Gelfond, Adler, Barish, Daniels, Levin & Creskoff, Philadelphia, Pa., for plaintiffs.

David A. Eastburn, Wilmington, Del., for Artisans Sav. Bank.

Rodney M. Layton and Wendell Fenton, Richards, Layton & Finger, Wilmington, Del., for Wilmington Trust Co. and Sussex Trust Co.

Charles F. Richards, Jr. and Stephen E. Herrmann, Richards, Layton & Finger, Wilmington, Del., for Farmers Bank of the State of Delaware and Colonial Nat. Bank.

David S. Keil, Keil & Keil, Wilmington, Del., and Joseph S. Flowers, Wilmington, Del., for Home Federal Sav. and Loan Assn.

James M. Tunnell, Jr., William H. Sudell, Jr. and Richard D. Allen, Morris, Nichols, Arsht & Tunnell, Wilmington, Del., for Wilmington Sav. Fund Society.

Frank J. Miller, Miller & Foulk, Wilmington, Del., for First Federal Sav. and Loan Assn.

Robert V. Huber, Wilmington, Del., for Ninth Ward Sav. and Loan Assn.

OPINION

STAPLETON, District Judge:

In this action, the plaintiffs are suing nine banks, trust companies and savings and loan associations¹ in the State of Delaware that are in the mortgage loan business.² Five separate counts are listed in the complaint involving claims under the antitrust laws, the Truth in Lending Act, Delaware state law and, as to several of the defendants, the Home Owners' Loan Act. Each of the claims relates to the alleged practice of the defendants of requiring mortgagors to prepay to the mortgagee on a monthly basis charges for taxes, insurance and assessments. It is alleged that the prepaid funds, so-called "escrow funds", are collected by the banks for payment to the insurance companies and taxing jurisdictions as they become due but, in the interim, the banks have the use of the funds on which they pay no interest.

Eight of the defendant banks have moved to dismiss the complaint pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure or, in the alternative, for summary judgment. The last defendant, Ninth Ward Savings and Loan Association (hereinafter "Ninth Ward"), has moved to be dropped from the case or to have the claims against it severed pursuant to Rule 21. Similar suits have been filed on behalf of different plaintiffs in courts around the country and, thus, many of the issues raised have already received careful judicial consideration. Those can be handled with dispatch. The federal antitrust claims which are the heart of the lawsuit require more analysis and they will be treated last.

I. TRUTH-IN-LENDING CLAIMS.

Count two of the complaint enumerates a variety of ways in which the mortgage practices of the defendants are alleged to violate the Truth in Lending Act, 15 U.S.C. § 1601, et seq. The Third Circuit considered and rejected virtually identical claims in Stavrides v. Mellon National, 487 F.2d 953 (1973). As the plaintiffs acknowledge, I am bound by that holding and it is dispositive of the claims here. Count two will be dismissed.

II. DELAWARE ANTITRUST LAW.

Plaintiffs assert that the facts they allege constitute a combination in restraint of trade which violates Delaware antitrust and conspiracy statutes. They give no citations to statutes but this is not surprising since Delaware has no antitrust laws. Count three will likewise be dismissed for failure to state a claim.

III. COMMON LAW.

Count four raises a claim of unjust enrichment apparently based on the theory that the clauses of the mortgage agreements requiring the prepayment of taxes and insurance create either an express or a constructive trust of the prepaid funds. This is a state law claim and, if this Court is to hear it, it must do so as an exercise of its pendent jurisdiction. Questions of pendent jurisdiction raise two issues. First, does the Court have the power to adjudicate the claim, that is, is the claim truly pendent? Second, if the power exists, is the case one in which considerations of judicial economy, convenience and fairness to the parties justify the Court's exercising its discretion to hear the pendent claim? United Mine Workers of America v. Gibbs, 383 U.S. 715, 725-26, 86 S.Ct. 1130, 16 L.Ed.2d 218 (1966).

In United Mine Workers, the Supreme Court observed that, to decide whether a particular claim is pendent, the District Court must determine whether the state and federal claims derive from "a common nucleus of operative fact". Here, in order to evaluate the merits of the trust claim, the Court would have to analyze the terms of the individual mortgage agreements each of the defendants uses in its business. Once the Truth-in-Lending claims have been dismissed, the mortgage agreements are not part of the body of operative fact placed before the Court by virtue of the federal claims. Thus, without the necessary commonality of factual issues, the Court has no power to hear count four. But even leaving aside for a moment the question of power, this is not an appropriate case for the exercise of pendent jurisdiction.

United Mine Workers, supra, at 726, 86 S.Ct. at 1139 cautioned:

Needless decisions of state law should be avoided both as a matter of comity and to promote justice between the parties, by procuring for them a surer-footed reading of the applicable law.

The plaintiffs have filed precisely the same lawsuit in the Delaware Chancery Court. The interests of judicial economy, convenience and fairness to the parties that the Supreme Court has directed District Courts to consider militate against this Court contemporaneously ruling on the same matter.³ Count four will be dismissed without prejudice.

IV. HOME OWNERS' LOAN ACT OF 1933.

In their fifth cause of action, plaintiffs charge that, "by virtue of the . . . acts and practices complained of, defendant Savings and Loan Associations have improperly collected escrows in excess of disbursements for taxes, insurance, water rents and sewerage payments . . .." It is alleged that this is a violation of the Home Owners' Loan Act, 12 U.S.C. § 1461, et seq.

The only defendant affected by this charge is First Federal Savings and Loan Association. Home Federal is the only other federally chartered savings and loan association governed by the Act and it has had no mortgage dealings with any of the plaintiffs. With respect to a claim such as this, which does not have a conspiracy element to it, plaintiffs have no standing against a bank with whom they have not transacted business. Plaintiffs' fifth cause of action will be dismissed as to Home Federal.

First Federal asserts that the Chandlers, the plaintiffs who do have a mortgage with First Federal, have never been required to make monthly payments in excess of one-twelfth of the annual charges for taxes and insurance and, thus, have not been overcharged. However, the bank has not submitted adequate affidavit documentation of its assertion. On this state of the record, I cannot grant summary judgment to First Federal on count five. First Federal does not contend, as Home Federal did, that there is no private cause of action under the Home Owners' Loan Act. Accordingly, I do not decide that question.⁴

V. FEDERAL ANTITRUST CLAIMS.

Plaintiffs charge the defendants with a three part conspiracy in restraint of trade. They allege that the banks have conspired to require mortgagors to prepay taxes and insurance,⁵ to refuse to pay interest on the prepaid "escrow" funds and, finally, to "tie" the extension of escrow services to the extension of a mortgage loan.⁶ Summary judgment must be entered against the Wolfsons because the undisputed facts of record show that they do not have a claim which entitles them to relief. The Chandlers, on the other hand, have adequately alleged a violation of the antitrust laws and disposition of defendants' motion for summary judgment will be deferred pending the discovery which these plaintiffs have requested regarding those issues pursuant to Rule 56(f).

A. The Wolfson Mortgage.

The complaint recites that the Wolfsons have a mortgage with the Wilmington Trust Company. Wilmington Trust has responded with documentary evidence showing that this is not the case. According to Wilmington Trust's affidavits, the mortgage on the property owned by the Wolfsons is a mortgage between Richard and Bertha Bennett, mortgagors, and T. B. O'Toole, Inc., mortgagee, dated April 30, 1959. T. B. O'Toole, which is a real estate brokerage firm, assigned that mortgage to the Bowery Savings Bank of New York on the same day it was executed. Thereafter, in 1964, the Bennetts transferred the property to the Excess Insurance Corporation subject to the Bennett mortgage. In 1966, Excess Insurance transferred title to the Wolfsons, again, subject to the Bennett mortgage. Bowery Savings Bank still holds the mortgage and Wilmington Trust is the local agent that services the mortgage.

In their response to the motion for summary judgment, the plaintiffs did not dispute any of these facts and argued only that they have standing to sue based on "the assignment" of the mortgage to them.⁷ Assuming as a matter of law that antitrust claims can be assigned and assuming, further, that an assignment of a mortgage constitutes an assignment of antitrust claims theretofore held by the assignor as a result of his original mortgage transaction, the difficulty with this argument is that the Bennett mortgage has not been assigned to the Wolfsons. Wilmington Trust's records showing that the Wolfsons took their property "subject to" the Bennett mortgage stands uncontradicted. Vis à vis the mortgage lender, one who takes property subject to a mortgage obtains no personal rights or responsibilities on the mortgage as he or she would if there were an assignment.⁸

The Wolfsons have shown no other activities or facts that would...