New Rock Assets Ptnrs, LP v. Preferred Entity , 101 F.3d 1492 ( 1996 )

Opinions of the United
1996 Decisions States Court of Appeals
for the Third Circuit
12-10-1996
New Rock Assets Ptnrs, LP v. Preferred Entity
Precedential or Non-Precedential:
Docket 95-5306
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UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 95-5306
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.
(Amended per the Clerk's 6/2/95 order)
Appellants.
On Appeal from the United States District Court
for the District of New Jersey
(D.C. Civil Action No. 93-cv-03371)
Argued on December 13, 1995
Before: ROTH, LEWIS and MCKEE, Circuit Judges
(Opinion Filed December 10, 1996)
Deborah A. Silodor, Esq. (Argued)
Solomon and Weinberg
Two University Plaza
Suite 206
Hackensack, New Jersey 07601
Attorney for Appellee
Gregory R. Haworth, Esq. (Argued)
Carl A. Rizzo, Esq.
Christine R. Smith, Esq.
Cole, Schotz, Meisel, Forman & Leonard
25 Main Street, 4th Floor
Hackensack, New Jersey 07601
Attorneys for Appellants
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), 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 have
us moot the
propriety of the district court's granting of summary judgment while still
giving collateral
estoppel effect to that judgment. We do not wish impliedly to give our
stamp of approval to such
a concept. We will therefore briefly point out the invalidity of the
theory.
In making its argument on "partial mootness," New Rock points to
language in
National Iranian Oil which supports its position that a judgment having
possible collateral legal
consequences, including collateral estoppel effect in similar actions, is
not moot. 983 F.2d at
490. The problem with New Rock's argument is that the example of
collateral estoppel is only
one of several examples that we gave in National Iranian Oil of effects,
such as a viable claim for
damages or a likelihood that the parties will relitigate the same issue,
that will support a finding
that a matter is not moot. If any one of these factors is established,
the entire judgment is saved
from mootness. It is not just a portion of the judgment which survives.
If, however, the appeal is
moot, it is entirely moot and it will have no res judicata effect. Id. at
489 (citing United States v.
Munsingwear, Inc., 340 U.S. 36, 39-41 (1950); Clarendon Ltd. v. Nu-West
Indus., Inc., 936 F.2d
127, 130 (3d Cir. 1991)).
The need that a judgment have a res judicata effect may be enough
to support a
determination that a judgment is not moot. We recognized in National
Iranian Oil that such a
need for preclusive effect may be a sufficient reason to reject mootness.
983 F.2d at 490.
However, if we come to such a conclusion, i.e., that we will reject
mootness so that a judgment
has res judicata effect, then a fortiori the entire matter is not moot.
New Rock cannot have a res
judicata effect to assist it in the New York foreclosure actions and at
the same time have a
declaration that the granting of summary judgment by the district court,
or the propriety of that
judgment, is moot. A case is either moot or not. Because the potential
for effective relief
remains, this case is not moot.
B.
We now turn to the central jurisdictional issues raised in this
appeal.
1.
Preferred Entity challenges the district court's granting of
summary judgment
based on the absence of federal jurisdiction. New Rock's sole asserted
basis for jurisdiction is 12
U.S.C. § 1441a(l), which grants the federal courts original jurisdiction
over any case to which the
RTC is a party. Preferred Entity argues that because New Rock intervened
in the suit and filed
an amended complaint naming itself as sole plaintiff, the RTC is no longer
a party to the action
and § 1441a(l) cannot support jurisdiction. Although this question
presents a difficult problem of
statutory interpretation, we conclude that Preferred Entity is correct in
its reading of § 1441a(l).
Preferred Entity's contention forces us to explore a gray area of
FIRREA
jurisdiction. It seems clear that jurisdiction under § 1441a(l) would not
attach had the RTC sold
the loans to New Rock before litigation or had New Rock filed its own
action. In such a
scenario, the RTC would never have been a party to the case, and the RTC
cannot pass its
jurisdictional rights by contract. It seems equally clear that federal
jurisdiction would attach if
the RTC had remained a party to the case, regardless of its capacity.
Spring Garden Assoc., L.P.
v. Resolution Trust Corp., 26 F.3d 412, 415-17 (3d Cir. 1994) (finding
jurisdiction where RTC
substituted itself for defendant and removed entire action to federal
court); Resolution Trust
Corp. v. Nernberg, 3 F.3d 62, 66-67 (3d Cir. 1993) (finding jurisdiction
where RTC substituted
itself for plaintiff and removed after state court judgment had been
appealed). The issue is
therefore whether § 1441a(l) provides for continuing jurisdiction where
the RTC was once a
party but has since been dropped from the case.
This question raises a matter of first impression for this
circuit. Indeed, few
courts have ever considered it. Of the federal appellate tribunals, only
the United States Court of
Appeals for the Fifth Circuit has addressed the issue. Federal Sav. &
Loan Ins. Corp. v. Griffin,
935 F.2d 691 (5th Cir. 1991), cert. denied, 502 U.S. 1092 (1992). Several
district courts have
reached it, including the Western District of Pennsylvania. Skaro v.
Eastern Sav. Bank, 866 F.
Supp. 229 (W.D. Pa. 1994). Skaro relied almost exclusively on Griffin, as
did the district court
here. By contrast, in Mill Investments, Inc. v. Brooks Woolen Co., Inc.,
797 F. Supp. 49 (D. Me.
1992), the United States District Court for the District of Maine
discussed Griffin thoroughly and
reached contrary conclusions. After conducting our own independent
analysis of the matter, we
find that we disagree with Griffin and agree with Mill Investments.
The scope of § 1441a(l) presents a question of statutory
interpretation. This
process begins with the plain language of the statute. Santa Fe Medical
Services, Inc. v. Segal
(In re Segal), 57 F.3d 342, 345 (3d Cir. 1995); Spring Garden, 26 F.3d at
415; see United States
Trustee v. Price Waterhouse, 19 F.3d 138, 141 (3d Cir. 1994). "Where . .
. the statute's language
is plain, 'the sole function of the court is to enforce it according to
its terms.'" United States v.
Ron Pair Enters., Inc., 489 U.S. 235, 241 (1989) (quoting Caminetti v.
United States, 242 U.S.
470, 485 (1917)). Plain meaning is conclusive, "except in the 'rare cases
[in which] the literal
application of a statute will produce a result demonstrably at odds with
the intentions of its
drafters.'" Id. at 242 (alteration in original) (quoting Griffin v.
Oceanic Contractors, Inc., 458
U.S. 564, 571 (1982)).
In determining the plain meaning of FIRREA, we have consistently
looked to its
legislative history. Smith v. Fidelity Consumer Discount Co., 898 F.2d
907, 911 (3d Cir. 1990);
see Hudson United Bank v. Chase Manhattan Bank of Conn., N.A., 43 F.3d
843, 849 n.14 (3d
Cir. 1994) ("As this is a matter of statutory construction, consideration
of the legislative history
would be appropriate."). We have also examined "the atmosphere in which
[the statute] was
enacted." Carteret Savings Bank, F.A. v. Office of Thrift Supervision,
963 F.2d 567, 574 (3d
Cir. 1992). Only if the plain language of the statute remains ambiguous
after these steps will we
"resort to other rules of statutory construction . . .." Resolution Trust
Corp. v. Nernberg, 3 F.3d
62, 64 (3d Cir. 1993) (finding ambiguity in removal provision of §
1441a(l)(3)(A) and (C)).
These principles establish the requisite steps in our inquiry. We
note at the outset
that we reach our conclusion based on plain meaning. We find neither a
"literal application of
the statute [that] would produce a result demonstrably at odds with the
intentions of its drafters,"
Ron Pair Enter., 489 U.S. at 242, nor an ambiguity that forces us to
invoke general canons of
statutory construction, Nernberg, 3 F.3d at 64.
We begin with the provision itself. Both the initial and amended
complaints
ground jurisdiction with a general cite to § 1441a(l). This section,
entitled "Power to remove;
jurisdiction," contains three parts. Section 1441a(l)(1) sets out a
general jurisdictional grant
creating original jurisdiction in the federal courts. Section 1441a(l)(2)
provides for substitution
of the RTC as a party for the RTC's predecessors in thrift supervision,
the now-defunct Federal
Saving and Loan Insurance Corporation ("FSLIC"), the equally defunct
Federal Home Loan
Bank Board ("FHLBB"), and the reconstituted and redirected Federal Deposit
Insurance
Corporation ("FDIC"). Section 1441a(l)(3) sets forth specific procedures
for removing actions
from state court where the RTC is a party. The vast majority of case law
addresses this final
provision. See, e.g., Wujick v. Dale & Dale, Inc., 43 F.3d 790, 792-94
(3d Cir. 1994)
(addressing jurisdictional sufficiency of removal by RTC; dismissing claim
against RTC due to
plaintiff's failure to exhaust remedies).
Despite New Rock's general citation to § 1441a(l), neither part (2)
nor part (3) is
relevant. The RTC began the case as a party, obviating the need for §
1441a(l)(2). The case was
originally filed in federal court, eliminating the need for § 1441a(l)(3).
This case turns on §
1441a(l)(1).
Section 1441a(l)(1) states:
(1) In general
Notwithstanding any other provisions of law, any civil action,
suit, or
proceeding to which the [RTC] is a party shall be deemed to arise
under the laws
of the United States, and the United States district courts shall have
original
jurisdiction over such action, suit, or proceeding.
12 U.S.C. § 1441a(l)(1).
Preferred Entity contends that the plain language of § 1441a(l)(1)
provides for
jurisdiction only over cases where the RTC is a party but not where it was
a party. In the current
action, the RTC transferred its loans to New Rock, the court dismissed the
RTC from the case,
and New Rock filed an amended complaint naming itself as the sole
plaintiff. Preferred Entity
contends that the RTC consequently is no longer a party and jurisdiction
no longer exists.
New Rock argues instead that the case is controlled by the principle
that
jurisdiction is determined at the time the action is commenced, both as a
matter of statutory
interpretation and, as discussed in Part III.B.2, a matter of black letter
law. Under § 1441a(l)(1),
this result is obtained by reading the statute to create federal
jurisdiction which, once established
at the outset by the presence of the RTC as a party, continues throughout
the litigation, whether
or not the RTC remains as a party.
We can divine no conclusive method of deciding between the two
alternative
readings of § 1441a(l)(1) from the text of the statute alone. Cf. Hudson
United Bank, 43 F.3d at
849 ("It is true that FIRREA is awkwardly written and difficult to
interpret."). Nevertheless, we
find Preferred Entity's reading more persuasive. It encompasses the
presence of the RTC as a
party. Moreover, it reads the statute narrowly rather than expansively.
See discussion, infra.
Were we forced to rely solely on the words of the statute, we would agree
with Preferred Entity.
But other sources remain.
Following Smith v. Fidelity Consumer Discount Co. and Hudson
United Bank,
we next turn to legislative history to clarify plain meaning.
Unfortunately, the legislative history
of § 1441a(l)(1) provides minimal assistance. The current provision
became law as 1989 Pub. L.
No. 101-73 § 53(l)(1), 103 Stat. 389. The House Report's lone comment
reads:
Subsection (o) [sic.] provides that suits by or against the
RTC shall arise
under the laws of the United States and can be removed
to the District
Court of the District of Columbia or if the suit arises
out of actions by the
RTC with respect to an institution for which a
conservator or receiver has
been appointed in the district court in which the
institution's principal
place of business is located.
H.R. Rep. No. 101-54(I), 101st Congress, 1st Sess. 362 (1989),
reprinted in 1989 U.S.C.C.A.N.
86, 158. This passage does little more than reiterate the language of the
bill and demonstrate that
the provision was concerned first and foremost with removal. The
substitution of the phrase "by
or against the RTC" provides some support for the narrow reading proposed
by Preferred Entity,
but the same arguments for competing interpretations apply. Like the
plain language of the
statute, the legislative history favors Preferred Entity, but only
slightly.
Stronger support for a narrow reading flows from the next source
to which we
have looked in interpreting FIRREA, "the atmosphere in which [the statute]
was enacted."
Carteret Savings, 963 F.2d at 574. Carteret describes that atmosphere.
In 1989, the thrift industry was in crisis. As the
House Report
noted, "[t]he nation's thrift industry and its deposit
insurance fund, the
[FSLIC] are currently in precarious financial condition
and consumer
confidence in the savings and loan industry is waning."
H.R. Rep. No. 54,
101st Cong., 1st Sess., pt. 1, at 302 (1989), reprinted
in 1989
U.S.C.C.A.N. 86, 98. The 2,949 FSLIC-insured savings
institutions
holding deposits of $971 billion and assets of $1.35
trillion lost $12.1
billion in 1988. Id. at 303, reprinted in 1989
U.S.C.C.A.N. at 99. The
FSLIC was in a combined deficit position of at least
$56 billion by the end
of 1988. Id. at 304, reprinted in 1989 U.S.C.C.A.N. at
100. Rapidly
declining consumer confidence led to record deposit
withdrawals by
consumers. Id. at 305, reprinted in 1989 U.S.C.C.A.N.
at 101. Congress
believed that the Bank Board, inter alia, had
repeatedly understated the
magnitude of the problem. Id.
Id. at 574-75.
In this atmosphere of crisis, Congress passed FIRREA to serve
several important
purposes. As framed by the statute, these purposes included: "(7) To
establish a new
corporation, to be known as the Resolution Trust Corporation, to contain,
manage, and resolve
failed savings associations." 1989 Pub. L. No. 101-73 § 101, 103 Stat.
187. The House Report
stated this goal in more general terms: "The primary purposes of [FIRREA]
are to . . . establish
organizations and procedures to obtain and administer the necessary
funding to resolve failed
thrift cases and to dispose of the assets of these institutions . . . and,
enhance the regulatory
enforcement powers of the depositor institution regulatory agencies . .
.." H.R. Rep. No. 101-
54(I), 101st Congress, 1st Sess. 308 (1989), reprinted in 1989
U.S.C.C.A.N. 86, 104. To serve
these purposes, FIRREA established the RTC "to manage and dispose of
assets acquired from
failed thrifts." Id.
Although not expressly discussed in the legislative history, §
1441a(l)(1)'s grant
of federal jurisdiction relates to these purposes in obvious ways. It
gives the RTC the benefit of
a federal forum and a uniform body of federal law for its receivership
activities. The federal
forum is also a boon to the RTC both in pursuing claims and defending
actions against the thrifts
over which it had assumed control. The broader scope of a federal remedy
similarly boosts the
RTC's enforcement authority. Federal jurisdiction thus helps the RTC
"manage and dispose of
assets acquired from failed thrifts." Id.
The role of federal jurisdiction in assisting the RTC in its
management role and in
disposing of thrift assets also indicates that once this has been
accomplished, the reasons for
federal jurisdiction end. Once the RTC has successfully managed a thrift
and either restored it to
solvency or transferred its assets to willing buyers, the agency's role--
and hence the logic of
jurisdiction--no longer exists. This reading indicates why the terms of
the statute limit federal
jurisdiction to cases in which the RTC "is a party." The RTC will
presumably only be a party
where it is engaged in active management and disposal of thrifts and
thrift assets. The RTC will
no longer be a party--and jurisdiction will no longer apply--once the RTC
has managed a thrift
and its assets have been disposed.
The atmosphere surrounding FIRREA and the purposes of the statute
thus provide
additional support for Preferred Entity's reading of § 1441a(l)(1). Once
New Rock became "the
sole owner and holder of all right, title and interest in the
Indebtedness," and once it "succeeded
to all of RTC's right, title and interest in the Rent Order [obtained
against defendants in a
previous state court action]," the RTC's interest in the loans had been
managed and disposed.
The RTC no longer had any role in the action, and the agency was dropped
from the case.
Similarly, there was no longer any reason for federal jurisdiction, and §
1441a(l)(1)'s power
lapsed. Given the purposes of FIRREA, Preferred Entity's jurisdictional
stance is correct.
Based on the language of § 1441a(l)(1), its legislative history,
and the background
and purpose of FIRREA, we conclude that the plain meaning of the statute
precludes continuing
jurisdiction over an action where the RTC is no longer a party. Section
1441a(l)(1) will not
support jurisdiction in this case.
In Federal Sav. & Loan Ins. Corp. v. Griffin, 935 F.2d 691 (5th
Cir. 1991), the
Fifth Circuit reached the opposite conclusion. Griffin involved a similar
scenario in which the
FSLIC, acting as receiver for a failed thrift, removed a contract action
to federal court. With the
passage of FIRREA, the FDIC replaced the FSLIC. Jurisdiction was based on
12 U.S.C. § 1819,
the FDIC's jurisdictional provision corresponding to the RTC's § 1441a(l).
See Spring Garden,
26 F.3d at 416 n.7 (noting parallels between statutes); Nernberg, 3 F.3d
at 66 n.2 (same). The
FDIC assigned the contract action to a thrift that had acquired the assets
and liabilities of the
failed institution, after which it "apparently no longer pursu[ed] any
claims." 935 F.2d at 694.
This left the thrift and the private defendant as the only parties.
Griffin nevertheless asserted
jurisdiction.
Griffin based its conclusion primarily on policy concerns.
Without citation to
caselaw or legislative history, the court concluded that
policy reasons for insuring federal jurisdiction over cases
involving the
actions of failed thrifts continue when the FDIC is
voluntarily dismissed
as a party and the owner of the failed thrift's assets
remains. A transferee
from FSLIC or FDIC, as successor of their interests, is
still entitled to the
protection of federal courts applying D'Oench Duhme,
even when FSLIC
or FDIC is voluntarily dismissed.
935 F.2d at 696.
In response to Griffin, the district court in Mill Investments,
Inc. v. Brooks
Woolen Co., Inc., 797 F. Supp. 49 (D. Me. 1992), explored the policies
behind FIRREA's
jurisdictional grant and reached the same conclusions about its plain
meaning that we have
reached here:
FIRREA was enacted to deal with a banking crisis and "to
smooth the
modalities by which rehabilitation might be
accomplished." Serge
Marquis v. Federal Deposit Insurance Corp., 965 F.2d at
1154. It is clear
to the Court that this policy is not advanced in any
significant way by
retaining federal jurisdiction once the failed bank's
assets have been
assigned to a private company. The expanded federal
jurisdiction and
other procedural protections of FIRREA may
"tremendously increase the
FDIC's ability to carry out its regulatory and
enforcement responsibilities
under FIRREA." Matter of Meyerland Co., 960 F.2d 512,
519 (5th Cir.
1992). While the procedural protections also allow,
"the FDIC to
effectively and aggressively protect a failed bank's
interests and assets," id.at 519-20, it can no longer do so when it is no
longer a party to the case
and when those assets have successfully been assigned
to another. In
essence, one of the goals of the statute has been
achieved on a micro level
once the assets have been assigned.
797 F. Supp. at 53-54. We agree. Contrary to Griffin's naked
assertion, the policy reasons for
federal jurisdiction end when the FDIC or RTC leaves the case.
Mill Investments also dealt with Griffin's claim that the need
for federal
enforcement of the D'Oench, Duhme doctrine supported jurisdiction.
"D'Oench, Duhme is a
federal estoppel doctrine which prohibits borrowers or guarantors from
using secret or
unrecorded side agreements to defend against efforts by FDIC or its
assignees to collect on
promissory notes it has acquired from a failed bank." Id. at 54 (citation
omitted); see generallyAdams v. Madison Realty & Dev., Inc., 937 F.2d 845,
852-54 (3d Cir. 1991) (discussing
D'Oench Duhme). The Mill Investments court saw no reason why state courts
could not enforce
these defenses. 797 F. Supp. at 54. We also have faith in the competence
of state tribunals.
Griffin's D'Oench, Duhme policy rationale is not convincing.
As a result, we find Griffin's position on § 1441a(l)(1)
unpersuasive. By contrast,
our reading of the statute is consistent with the purpose of FIRREA as
expressed in the statute
and its legislative history. We also note that our reading is consistent
with general policies
underlying federal jurisdiction. These principles include the limited
nature of federal jurisdiction
and the goal of not interfering in the business of the states.
The limited nature of federal jurisdiction needs little
discussion. This principle
marks a fundamental precept of the American court system. Owen Equip. &
Erection Co. v.
Kroger, 437 U.S. 365, 374 (1978). Interpreting § 1441a(l)(1) narrowly
comports with this
general rule. See Lyon v. Whisman, 45 F.3d 758, 763-64 (3d Cir. 1995)
(interpreting narrowly
jurisdiction under Fair Labor Standards Act); see also Shamrock Oil & Gas
Corp. v. Sheets, 313
U.S. 100, 108-09 (1941) (interpreting jurisdictional statute narrowly).
A narrow reading of § 1441a(l)(1) also comports with the need to
avoid
interfering in state court matters. In BFP v. Resolution Trust Corp., ___
U.S. ___, 114 S. Ct.
1757 (1994), the Supreme Court recognized this interest in considering the
impact of a federal
bankruptcy provision on state foreclosure law:
Federal statutes impinging on important state interests
cannot be construed
without regard to the implications of our dual system
of government.
When the Federal Government takes over local radiations
in the vast
network of our national economic enterprise and thereby
radically
readjusts the balance of state and national authority,
those charged with the
duty of legislating must be reasonably explicit. It is
beyond question that
an essential state interest is at issue [in property
foreclosures] . . .. To
displace traditional State regulation in such a manner,
the federal statutory
purpose must be clear and manifest. Otherwise, the
[statute] will be
construed to adopt, rather than to displace, pre-
existing state law.
Id. at 1764-65 (citations and alterations omitted).
We have previously expressed similar concerns about § 1441a(l).
We note with some uneasiness that . . . the Resolution Trust
removal
statute does not exclude [purely state law] cases. The
language of the
statute thus allows Resolution Trust to remove routine
collection and
foreclosure cases to the already overburdened federal
courts. . . . It is a
serious question whether such litigation is properly
the[ir] role.
Nernberg, 3 F.3d at 68 n.3. In this passage, we were commenting on
post-judgment removal
from state court where the RTC had been substituted as a party. In such a
scenario, the RTC
becomes an active participant in the case, injecting a federal element and
creating a basis for
removal. We nonetheless questioned the role of the federal courts in
resolving such a dispute.
The concerns expressed in Nernberg are equally appropriate and
even accentuated
in the current context, where the RTC was once a party to the case but has
now been dismissed,
leaving a purely state law matter. Extending jurisdiction to federalize
this class of foreclosure
actions absent a "clear and manifest" legislative intent would conflict
with the Supreme Court's
ruling in BFP. 114 S.Ct at 1765. Our examination of the plain meaning of
§ 1441a(l)(1) shows
that no such "clear and manifest" intent exists. Our interpretation of
the statute thus coheres with
the federal goal of avoiding interference in state concerns.
For these reasons, we conclude that once the RTC left the case, §
1441a(l)(1)
could no longer support federal jurisdiction. We will reverse the
district court's exercise of
jurisdiction pursuant to this provision.
2.
Having determined that the language of § 1441a(l)(1) will not
support continuing
jurisdiction, we must next address New Rock's argument that the "black
letter rule" that
jurisdiction is determined at the time of filing preserves jurisdiction
after the RTC's dismissal.
We disagree.
The principle that jurisdiction is determined at the outset of
the action is simply
insufficient to support the continuing applicability of § 1441a(l)(1) to
this case. One basic
difficulty with this argument is that the letter and spirit of the rule
apply most clearly to diversity
cases. The Supreme Court set out the rule in the diversity context. St.
Paul Mercury Indem. Co.
v. Red Cab Co., 303 U.S. 283, 286, 290-92 (1938). In addition, the Court
crafted the rule for the
removal of actions from state court, which involves a more lenient
standard not relevant here. Id.
Most importantly, the policies behind removal and the risks of
manipulative behavior played a
significant role in the Court's decision. St. Paul focused primarily on
the monetary threshold for
federal jurisdiction, observing that the time of filing rule prevented
plaintiffs from subsequently
amending their complaint to plead a lesser amount and avoid removal. Id.
at 294. Similar
concerns applied to changes of parties that would potentially destroy
diversity of citizenship. Id.at 294-95. From the outset, the underlying
concern of the time of filing rule was the risk that
parties would deploy procedural tactics to manipulate federal
jurisdiction.
The rule that jurisdiction is assessed at the time of the filing
of the complaint has
been applied only rarely to federal question cases. Moreover, in these
rare cases, the rule has
often been applied axiomatically, without extensive discussion or
analysis. See Rosa v.
Resolution Trust Corp., 938 F.2d 383, 392 n.12 (3d Cir.), cert. denied,
502 U.S. 981 (1991); see
also F. Alderete General Contractors, Inc., 715 F.2d 1476, 1480 (Fed. Cir.
1983) (observing in
government contracts action that "the decision below is at variance with
the long-standing rule in
the Federal courts that jurisdiction is determined at the time the suit is
filed and, after vesting,
cannot be ousted by subsequent events, including action by the parties").
Even in the federal
question context, however, the focus of the time of filing rule has been
on preventing
manipulation of jurisdiction when a claim is removed. As we observed in
Westmoreland
Hospital Ass'n v. Blue Cross of Western Pa., "a subsequent amendment to
the complaint after
removal designed to eliminate the federal claim will not defeat federal
jurisdiction." 605 F.2d
119, 123 (3d Cir. 1979) (emphasis added), cert. denied, 444 U.S. 1077
(1980). Along with the
obvious goal of judicial efficiency, we perceive the risk of strategic
behavior as the primary
rationale behind the time of filing rule.
Manipulation of jurisdiction is simply not at issue in this case.
There is no
suggestion of manipulation, nor would the facts support it. The
jurisdiction-destroying transfer
of assets between the RTC and New Rock was an arms length transaction
independent of the
jurisdictional issue. Without the possibility of manipulative behavior,
the primary policy behind
the time of filing rule is not implicated.
Our rejection of an absolute time of filing requirement breaks no
new ground.
Courts that have considered the rule more fully have not hesitated to
abandon it where
appropriate. In Boelens v. Redman Homes, Inc., 759 F.2d 504 (5th Cir.
1985), the Fifth Circuit
discussed the policies behind the time of filing rule and held that in a
federal question case,
where the plaintiff's amended complaint omitted federal counts included in
the original
complaint on which jurisdiction could be based, the court would look to
the amended complaint
and decline jurisdiction. Id. at 508. The Fifth Circuit interpreted this
rule as consistent with the
general principle that the amended complaint "supersedes the original and
renders it of no legal
effect, unless the amended complaint specifically refers to or adopts the
earlier pleading." Id. at
508.
 We were equally quick to reject the time of filing rule in Lovell
Mfg. v. Export-
Import Bank, 843 F.2d 725 (3d Cir. 1988):
Lovell . . . cites several older Third Circuit cases for the
proposition that
our determination of jurisdiction should be based
solely on the basis of the
pleadings, and not on subsequent events. . . . We are
uncertain that these
cases stand for the broad proposition for which Lovell
cites them.
However, regardless of what they once might have stood
for, and
regardless of the merit of these principles elsewhere,
plainly they do not
reflect recent Third Circuit jurisprudence. As Lovell
itself concedes, later
cases clearly hold that once all federal claims have
been dropped from a
case, the case simply does not belong in federal court.
Id. at 734 (citations omitted). We concluded by observing "that to
the extent a black-letter rule
ever existed, precluding a court from relying on post-removal events . .
., the Supreme Court
clearly did not feel bound by it in Carnegie-Mellon Univ. v. Cohill, ___
U.S. ___, 108 S. Ct. 614
(1988)." Id. at 735. Although the time of filing rule certainly retains
a large measure of
persuasive efficacy, we read Lovell as a clear rejection of any iron-clad
time of filing
requirement. Cf. Carr v. American Red Cross, 17 F.3d 671, 683-84 (3d Cir.
1994) (federal
jurisdiction arising from the involvement of the American Red Cross in a
case will cease on the
dismissal of the Red Cross from the case).
As a result, merely reciting the time of filing rule is not
enough to support
jurisdiction in this case. Although invoking this general principle has
some surface appeal, the
rule rests on policies that are not served by its application to these
facts. There is also significant
authority that supports our decision to diverge from it. New Rock's black
letter maxim will not
give the federal courts the power to hear this state law claim.
3.
We have concluded that once the RTC was dismissed from the case,
jurisdiction
in the district court could no longer rest on § 1441a(l)(1). We now
consider whether the district
court had supplemental jurisdiction over the claims pursuant to 28 U.S.C.§
1367 after the RTC,
the jurisdiction-conferring party, was dismissed and after the district
court had invested
considerable judicial resources and had resolved the case on its merits.
We conclude that § 1367
provided supplemental jurisdiction under the circumstances of this case.
Our holding means
only that the district court had the discretion to retain jurisdiction
after the RTC was dismissed; it
does not suggest that the district court was obligated to resolve the case
after the RTC dismissed,
nor does it even suggest that district courts should retain jurisdiction
in similar situations.
The question before us has two components. First, did Congress
intend with 28
U.S.C. § 1367 to provide the federal courts with the discretion to
exercise supplemental
jurisdiction in the situation that we face here? Second, if this was
Congress' intent, does this
grant of jurisdiction exceed the scope of Article III of the United States
Constitution? Because it
best introduces the issues involved in this case, we begin with the second
question.
The district court had jurisdiction over this action at the
outset of the litigation
pursuant to 12 U.S.C. § 1441a, which provides that any suit to which the
RTC is a party "shall be
deemed to arise under the laws of the United States." This jurisdictional
grant did not expand the
jurisdiction of the federal courts beyond that permissible under Article
III. Brockman v.
Merabank, 40 F.3d 1013, 1017 (9th Cir. 1994); see also Osborn v. Bank of
the United States, 22
U.S. (9 Wheat.) 738, 6 L. Ed. 204 (1824); American National Red Cross v.
S.G., 505 U.S. 247,
264, 112 S. Ct. 2465, 2475-6 (1993). The question before us now is whether
Congress could
extend this jurisdiction to include cases to which the RTC was party, but
is no longer, without
exceeding the bounds of Article III.
The Supreme Court delineated the modern constitutional bounds of
pendent
jurisdiction in United Mine Workers v. Gibbs, 383 U.S. 715 (1966). In
that opinion, the Court
considered when federal courts have jurisdiction over state claims which
are related to federal
claims between the same parties, but over which the federal courts have no
independent basis for
subject matter jurisdiction. The Court concluded that federal courts
have the power to hear a
state claim if the federal claim has "substance sufficient to confer
subject matter jurisdiction on
the court," and the state and federal claims "derive from a common nucleus
of operative facts."
383 U.S. at 725. This question is ordinarily resolved on the pleadings.
The decision to exercise
this power, on the other hand, remains open, and should be based on
considerations of "judicial
economy, convenience and fairness to the litigants." 383 U.S. at 726-727.
Once a court has
decided to exercise jurisdiction over the state claim, however,
elimination of the federal claim
does not deprive the court of the constitutional power to adjudicate the
pendent claim. Lentino v.
Fringe Emp. Plans, Inc., 611 F.2d 474, 479 (3d Cir. 1979).
Can this continuing jurisdiction over a state claim exist when,
rather than the
federal claim being eliminated, the federal claim itself becomes a state
claim? The Supreme
Court recently cited to Gibbs in a context analogous to the one with which
we are faced. In
Gutierrez de Martinez v. Lamagno, __ U.S. __, 115 S. Ct. 2227 (1995) a bare
majority of the
Court held that under the Federal Employees Liability Reform and Tort
Compensation Act (the
"Westfall Act"), the federal courts could review certification by the
Attorney General that an
employee sued for a wrongful or negligent act was acting within the scope
of his or her
employment or office at the time of incident. If the Attorney General so
certifies, the employee
is dismissed from the action, the United States is substituted as the
defendant, the case falls
within the Federal Tort Claims Act. If the case is not already in federal
court, it is then removed
from state court by the Attorney General. 115 S. Ct. at 2229, 2235. Once
in federal court the
certification decision by the Attorney General is reviewable.
Article III comes into play in this situation because if the district
court concludes
that the employee acted outside the scope of employment and thus rejects
the certification, the
individual defendant must be resubstituted and the United States will no
longer be a party. If the
parties are not diverse, the federal court could be left "with a case
without a federal question to
support the court's subject matter jurisdiction." Id. at 2236. Under the
statute, the Attorney
General's certification is conclusive for the purposes of removal,
suggesting that even if the
certification is rejected by the federal court and the United States is no
longer a party, remand is
not permissible. Although Lamagno itself did not raise this issue
because the parties were
diverse, the Court considered whether the statute should be interpreted to
avoid this potential
constitutional problem.
A four justice plurality cited to Gibbs in concluding that any
Article III problem
was not "a grave one." 115 S. Ct. at 2236. At the outset of the
litigation, the Court reasoned,
there was a significant federal question - whether the employee acted
within the scope of his
federal employment. Resolving this question, the Court concluded,
involved consideration of the
facts relevant to the underlying tort claims, thus "‘considerations of
judicial economy,
convenience and fairness' [citation to Gibbs omitted] make it reasonable
and proper for the
federal court to proceed beyond the federal question to final judgment
once it has invested time
and resources." Id. at 2237. Therefore, even if the United States were
replaced by a non-diverse
party, and there was no other basis for federal jurisdiction, the federal
court nonetheless retained
jurisdiction over the case without running afoul of Article III.
Justice Souter dissented, joined by three other Justices, reasoning
in part that
"requiring" a federal court to keep jurisdiction over the case after the
United States was no longer
a party "must at least approach the limit [of ‘arising under' jurisdiction
under Article III], if it
does not cross the line." Id. at 2239. The certification question could
not provide the basis for
jurisdiction, according to the dissent, because that question itself was
jurisdictional. In part to
avoid testing the limits of Article III, the dissent read the statute as
prohibiting review of the
Attorney General's certification by the district court.
In our case there was federal jurisdiction at the outset of the
litigation - the
presence of the RTC - which does not implicate the concerns of the dissent
in Lomagno.
Jurisdiction springs not from the question of jurisdiction itself, but
from the involvement of the
RTC. Moreover, unlike the dissent's reading of the statute at issue in
Lomagno, the
supplemental jurisdiction statute at issue in this case does not "require"
the district court to keep
jurisdiction, it merely permits it to do so. The considerations of
"judicial economy, convenience
and fairness" cited by the Lomagno plurality are particularly compelling
in this case where the
district court has completely resolved the dispute on its merits.
Requiring the parties to re-try the
case in state court would needlessly duplicate the resources expended by
the federal courts. We
thus conclude that in such a case, where the jurisdiction-conferring party
drops out and the
federal court retains jurisdiction over what becomes a state law claim
between non-diverse
parties, the bounds of Article III have not been crossed. See Garcia v.
U.S., 88 F.3d 318, 324
(5th Cir. 1996) (agreeing with Lomagno plurality that even after the
United States was dismissed
as party, Article III did not prevent federal court from resolving case on
the merits); see alsoAliota v. Graham, 984 F.2d 1350 (3d Cir. 1993), cert.
denied, 510 U.S. 817 (1994) (holding
Attorney General's certification reviewable and that the case could not be
remanded if the
certification was invalidated and the United States was no longer a
party).
An analogy to diversity jurisdiction supports our conclusion. In
diversity cases a
change in domicile that destroys the original basis for federal subject
matter jurisdiction does not
divest the federal courts of jurisdiction to continue to hear the case.
Mullen v. Torrence, 22 U.S.
(9 Wheat.) 537 (1824); Clarke v. Mathewson, 37 U.S. (12 Pet.) 164
(1838). We have rejected
an iron-clad "time of filing rule" that federal jurisdiction at the outset
of a case is dispositive as to
jurisdiction throughout the case. In rejecting the rule as dispositive,
however, we do not suggest
that jurisdiction at the outset of the case is irrelevant as to whether
the district court continued to
have jurisdiction after the RTC was dismissed. Indeed it is the initial
jurisdiction over the case
that provides the constitutional power for the court to continue to hear
it.
Finally, we note that a contrary conclusion would seriously limit the
ability of
Congress to provide a federal forum for litigation initiated by federally-
created entities. For
example, it would prevent Congress from deciding, after initially putting
the case in federal
court, that judicial economy required that that court have the discretion
to keep the case.
Congress would not even have the power to give continuing jurisdiction
over the case for reasons
related to the interests of the jurisdiction-conferring party. In this
case, for example, the RTC
may have more difficulty disposing of its assets if the purchaser knows
that any litigation
concerning those assets must be started anew in state court. Cf.
Freeport-McMoran, Inc. v. K.N.
Energy, Inc., 498 U.S. 426, 428, 111 S. Ct. 858, 860 (1991) (using this
reasoning to support the
rule that diversity jurisdiction, once established, is not defeated by the
addition of a non-diverse
party). We conclude that Article III does not require such a significant
limitation on Congress'
power to give jurisdiction to the federal courts of cases involving
federally-created entities.
We now go to the second part of the inquiry. We have determined that
Congress
had the power to permit this case to continue to be heard in federal
court. But is this what
Congress intended under 28 U.S.C. § 1367? We turn first to the language
of section 1367(a)
which provides:
(a) Except as provided in subsections (b) and (c) or as
expressly provided
otherwise by Federal statute, in any civil action of
which the district courts
have original jurisdiction, the district courts shall
have supplemental
jurisdiction over all other claims that are so related
to claims in the action
within such original jurisdiction that they form part
of the same case or
controversy under Article III of the United States
Constitution. Such
supplemental jurisdiction shall include claims that
involve the joinder of
additional parties.
28 U.S.C. § 1367. Under subsection (c),
the district courts may decline to exercise supplemental
jurisdiction over a
claim under subsection (a) if--
(1) the claim raises a novel or complex issue of
state
law,
(2) the claim substantially predominates over the
claim or claims over which the district court has
original
jurisdiction,
(3) the district court has dismissed all claims
over
which it has original jurisdiction, or
(4) in exceptional circumstances, there are other
compelling reasons for declining jurisdiction.
Id. (emphasis supplied).
Applying the statute to this case, we have pointed out that original
jurisdiction
pursuant to § 1441a(l)(1) existed when the RTC first filed this action.
This satisfies § 1367(a).
We have held that when the district court dismissed the RTC from the case,
it no longer had
jurisdiction under § 1441a(l)(1). This transition triggers a
discretionary decision on whether
jurisdiction over a state law claim should be declined pursuant to §
1367(c)(3). The plain
language of the statute makes declination permissive, not mandatory.
We recognize that Congress may not have contemplated the precise
issue raised
by this case when it drafted the supplemental jurisdiction statute.
Section 1367 appears to
address multiple state and federal claims growing out of the same case and
controversy or
existing between the parties. Here, by contrast, we have a single claim
that due to the accidents
of circumstance has shifted mid-action from a claim arising under federal
law to a claim existing
under state law. We believe, however, that the supplemental jurisdiction
statute, particularly
through its underlying purpose of judicial efficiency, extends to this
case. See Mill Investments
Inc. v. Brooks Woolen Co. Inc., 797 F. Supp. 49, 51-53 (D.Me. 1992)
(considering § 1367); see
also Kansas Pub. Employees Retirement Sys. v. Reimer & Kroger Assoc. Inc.,
61 F.3d 608, 611
(8th Cir. 1995) (noting that after RTC removed case and was then
dismissed, district court denied
motion to remand to state court and asserted supplemental jurisdiction
under § 1367). We do not
suggest, of course, that the district court would have erred had it
dismissed the case after the
RTC was no longer a party. We decide only that this case comes within §
1367(a) and the
district court therefore had the discretion to exercise supplemental
jurisdiction after dismissal of
the RTC.
Several factors support our conclusion. First, the statute
specifically provides that
the federal court may decline (and by implication, may chose to exercise)
jurisdiction over
supplemental claims even when the "district court has dismissed all claims
over which it has
original jurisdiction." (emphasis supplied). § 1367(c)(3). The situation
which the statute
specifically contemplates, in which the jurisdiction-conferring claims are
"dismissed" and the
court retains jurisdiction over the other claims, is difficult to
distinguish from this case in which
the jurisdiction-conferring party is dismissed. In both situations the
jurisdiction-conferring
element of the case drops out, and the federal court is left with a state
law claim.
Moreover, this case is not one in which the dismissal of the RTC
meant that the
case was never properly in federal court. Congress put the case in
federal court under § 1441a,
and in doing so acted well within the scope of Article III. In applying §
1367 we have suggested
a distinction between dismissal of a case for lack of subject matter
jurisdiction, which means
that § 1367(a) may not apply at all, and dismissal for failure to state a
claim, which does not
preclude application of § 1367(a). See Growth Horizons, Inc. v. Delaware
Co., 983 F.2d 1277,
1284 (3d Cir. 1993). But Growth Horizons did not address the issue here -
whether § 1367
applies where the court had subject matter jurisdiction at the outset of
the case, but after the
dismissal of a jurisdiction-conferring party no longer does. In this
case, we distinguish between
jurisdictional defects that deprive the court of jurisdiction altogether,
and those that arise only
after the court has jurisdiction. Cf. State Farm Mutual Automobile
Insurance Company v.
Powell, 87 F.3d 93, 97 (3d Cir. 1996) (making this distinction in
diversity cases); IMFC
Professional, Etc. v. Latin Am. Home Health, 676 F.2d 152, 159 n.12 (5th
Cir. 1982) (making
this distinction in removal cases).
Second, the language and legislative history of § 1367(a) support its
extension to
the limits that Article III permits. By its language § 1367(a) confers
jurisdiction in mandatory
terms to include those cases "which form part of the same case or
controversy under Article III of
the United States Constitution" (except as expressly excluded by statute
or as provided for in
subsections (b) and (c)). As one commentator explained:
the conferral is in very broad terms, and by using the "case or
controversy"
standard found in the Constitution's own statement of the outer
limits of federal
jurisdiction, Congress indicates that it wants supplemental
jurisdiction, at least in
the first instance - subject to its rejection as a matter of
judicial discretion under
subdivision (c) - to go the constitutional limit, where it
appeared to be carried in
the Gibbs case.
28 U.S.C. § 1367 (1993), David Siegal, Practice Commentary, "The 1990
Adoption of § 1367,
Codifying ‘Supplemental Jurisdiction'" at 831. We have consistently read
§ 1367(a) as
codifying, (or in the area of pendant parties, expanding) the
jurisdictional standard established in
Gibbs. Borough of West Mifflin v. Lancaster, 45 F.3d 780, 788 (3d Cir.
1995); Sinclair v.
Soniform, Inc., 935 F.2d 599, 603 (3d Cir. 1991); Lyon v. Whisman, 45
F.3d 758, 760 (3d Cir.
1995).
The legislative history of § 1367 supports the conclusion that
subsection (a) was
intended to grant supplemental jurisdiction to the limits of Article III.
See Arthur D. Wolf,
Codification of Supplemental Jurisdiction: Anatomy of a Legislative
Proposal, 14 W. New Eng.
L. Rev. 1, 23 (1992) (concluding that under § 1367 "the test of the reach
of subsection (a) will be
the scope of Article III.") This history makes clear that the statute was
passed in reaction to
Finley v. United States, 490 U.S. 547 (1989), which held, in the context
of pendent party
jurisdiction, that the Court would not assume that Congress had intended
the full constitutional
power to hear the claim had been given to the federal courts, unless
Congress passed specific
legislation to that effect. H.R. Rep. No. 101-734, 101st Congress, 2d
Sess., reprinted in 1990
U.S.C.C.A.N. 6802, 6874. The House Report states that the purpose of the
legislation was to
restore jurisdiction in cases like Finley and "essentially restore the
pre-Finely understandings of
the authorization for and limits on other forms of supplemental
jurisdiction." Id.
The "pre-Finley" understanding of the authorization for supplemental
jurisdiction
was that "where Congress has not spoken to the contrary or where we cannot
find Congressional
intent to the contrary, jurisdictional statutes give federal courts the
power to exercise ancillary
and pendent jurisdiction to the constitutional limit." Ambromovage v.
United Mine Workers,
726 F.2d 972, 991 n.57 (3d Cir. 1984). This was the approach taken in
United Mine Workers v.
Gibbs, 383 U.S. 715, 725 (1966): the Court looked to the constitutional
limits on pendent
jurisdiction and assumed that the federal courts' power extended to those
limits, without looking
for a specific grant of statutory authority. The language of § 1367(a)
stating that it applies
"except as expressly provided otherwise by federal statute" (emphasis
supplied) and that it shall
"include claims that involve the joinder or intervention of additional
parties," confirms this
reading of the statute.
We express no opinion as to whether § 1367 should be read broadly in
cases other
than the one before us, but here it is particularly appropriate because
the district court resolved
this case on its merits and the risk of needless expenditures of judicial
resources is accordingly a
very real one. Lentino v. Fringe Emp. Plans, Inc., 611 F.2d 474, 479 (3d
Cir. 1979). The
Supreme Court relied on similar reasoning when it rejected the argument
that because an original
constitutional claim was dismissed as moot, the district court should not
have resolved the
pendent claim:
We are not willing to defeat the common sense policy of pendent
jurisdiction - the
conservation of judicial energy and the avoidance of
multiciplicity of litigation -
by a conceptual approach that would require jurisdiction over
the primary claim at
all stages as a prerequisite to the resolution of the pendent
claim.
Rosado v. Wyman, 397 U.S. 397, 405 (1970).
Accordingly, although we are mindful that jurisdictional statutes
must be
construed narrowly, Healy v. Ratta, 292 U.S. 263, 270 (1934), we are also
mindful that it is our
obligation to effectuate the intentions of Congress in interpreting those
statutes. Here, those
intentions are clear from the face of the statute and the legislative
history, and they require that
the statute be read broadly to retain jurisdiction in this case in which
substantial judicial
resources have produced a final decision on the merits.
Finally, § 1367 has been read by the Fourth Circuit to provide
jurisdiction in an
analogous situation arising in diversity. Shanaghan v. Cahill, 58 F.3d
106 (4th Cir. 1995). In
that case, after the court granted summary judgment on one of the
plaintiff's claims, the amount
in controversy fell below the $50,000 required for federal jurisdiction
under 28 U.S.C. § 1332.
The district court concluded that it no longer had subject matter
jurisdiction. The Fourth Circuit
disagreed, concluding that pursuant to § 1367 the court had supplemental
jurisdiction over the
remaining claims. Id. at 109. In that case, like this one, the
jurisdictional basis for the claim
dropped out; there was no claim to which the state claims were
supplemental because jurisdiction
was premised on the aggregate of amount in controversy involved in all the
claims that were
asserted at the outset. When one claim dropped out, this basis for
federal jurisdiction no longer
existed. The court reasoned, however, that the statute applies when the
amount in controversy
falls below $50,000 just as it does when a federal question drops out of
the case:
...the same basic pattern of circumstances exists in both
contexts: the
jurisdictional basis of the action fades away and the court is
left with what would
otherwise be a state law case. There is no way to distinguish a
reduction of the
amount in controversy from the disappearance of a federal claim
as contemplated
under 1367(c). Indeed the factors applicable in the typical
pendent jurisdiction
case are equally applicable here -- comity, the existence of a
state limitations bar,
and considerations of judicial economy. Whenever the basis for
federal
jurisdiction evaporates, Congress has provided for discretion.
Shanaghan, 58 F.3d at 110; see also Clarke v. Whitney, 934 F. Supp.
148, 151 n.1 (E.D. Pa.
1996) (following Shanaghan).
Based on these considerations, we conclude that the district court
had
supplemental jurisdiction over this case after it dismissed the RTC. When
the RTC was
dismissed from the action, the district court should have considered
supplemental jurisdiction as
the statutory basis to decide issues which had been fully presented to the
court. Given the district
court's failure to consider § 1367, we would generally remand the case to
the district court for
further proceedings on the supplemental jurisdiction issue. See Growth
Horizons, Inc. v.
Delaware County, 983 F.2d 1277, 1284-85 (3d Cir. 1993) (remanding for
consideration of
supplemental jurisdiction after holding that jurisdiction existed over
primary federal claim). In
light of the posture of the current dispute, however, we will dispense
with remand, hold that
supplemental jurisdiction exists, and affirm the district court's grant of
summary judgment. SeeSinclair v. Soniform, Inc., 935 F.2d 599, 604 (3d
Cir. 1991) (reversing district court's finding of
no federal jurisdiction over maritime personal injury action; holding that
supplemental
jurisdiction existed over state law claims); Sparks v. Hershey, 661 F.2d
30, 34 (3d Cir. 1981)
(reversing district court's dismissal of state law claims as abuse of
discretion and directing court
to exercise jurisdiction over them).
In the instant case, the district court has already entered summary
judgment for
New Rock. That record is before us on appeal. We find no merit in
Preferred Entity's challenges
to the grant of summary judgment. Preferred Entity has never contested
the validity of the
mortgage, the existence of a default, or the acceleration of the
indebtedness. Preferred Entity has
never even contested the information in New Rock's affidavits or the
specific amount due.
Preferred Entity objects only to the legal sufficiency of the records to
support a summary
judgment motion, contending that New Rock's affidavits contain only
inadmissible hearsay.
We have reviewed the contours of the personal knowledge requirement
of Fed. R.
Civ. P. 56(e) and the business records exception of Fed. R. Ev. 803(6).
See, e.g., Colgan v.
Fisher Scientific Co., 935 F.2d 1407, 1423 (3d Cir.) (discussing Rule
56(e)), cert. denied, 502
U.S. 941 (1991); In re Japanese Elec. Products. Antitrust Litig., 723 F.2d
238, 288-89 (3d Cir.
1983) (discussing Fed. R. Ev. 803(6)), rev'd on other grounds, 475 U.S.
574 (1986). We believe
the documents were properly considered. We find no genuine issue of
material fact. Absent the
jurisdictional hurdle, we would not hesitate to affirm the district court.
Given the fact that the district court has effectively resolved the
case, we feel a
rejection of supplemental jurisdiction would be inappropriate. See Growth
Horizons, 983 F.2d at
1284-85 (emphasizing need to consider "judicial economy, convenience, and
fairness to the
litigants" in remanding to district court for consideration of
supplemental jurisdiction over state
law claim after trial on the merits); Sparks v. Hershey, 661 F.2d at 33
("[W]e are inclined to
believe that the dictates of judicial economy, convenience, fairness to
the parties, and comity are
better served by recognizing [supplemental] jurisdiction.") (citations
omitted). Indeed, we might
reverse any such rejection as an abuse of discretion. See Development
Fin. Corp. v. Alpha
Housing & Health Care, Inc., 54 F.3d 156, 161 (3d Cir. 1995); but see Lyon
v. Whisman, 45
F.3d 758, 760 (3d Cir. 1995) (declining supplemental jurisdiction and
dismissing case after trial
on merits). We also recognize that New Rock has made substantial
expenditures of time and
effort in foreclosing on the property. We see no need to remand this case
for a pro formaexercise of supplemental jurisdiction and a renewed appeal
on the summary judgment order. We
will ground jurisdiction on 28 U.S.C. § 1367 and affirm the district
court. See Sinclair, 935 F.2d
at 602-03; Sparks v. Hershey, 681 F.2d at 34.
IV.
For these reasons, the portion of the district court's order
exercising jurisdiction
pursuant to 12 U.S.C. § 1441a(l)(1) will be reversed. The district
court's entry of summary
judgment will be affirmed.
TO THE CLERK:
Please file the foregoing Opinion.
By the Court,
Circuit Judge
NEW ROCK ASSETS PARTNERS, L.P. v. PREFERRED ENTITY ADVANCEMENTS, INC.,
et al., No. 95-5306
McKEE, Circuit Judge, dissenting.
I agree that the foreclosure sale has not mooted this appeal, and I
therefore join in
Part III.A of the majority opinion. However, even assuming arguendo that
the majority correctly
concludes that the RTC's dismissal defeated federal jurisdiction, I cannot
agree that we can
uphold the exercise of supplemental jurisdiction over this state law
foreclosure action. Although
Congress may well be able to provide for a federal court to retain
jurisdiction over state law
claims once the RTC was dismissed here, that is not the issue. The
majority states that "[t]he
question before us now is whether Congress could extend this jurisdiction
to include cases to
which the RTC was a party, but is no longer, without exceeding the bounds
of Article III." Maj.
Op. at 29. Having gone in at the wrong place, it is perhaps not surprising
that the majority has
come out at the wrong place. The question posed is not the issue. Rather,
the question is whether
Congress did so extend this jurisdiction. Our inquiry, though simply
stated, is not so simply
resolved. We need to determine if Congress intended to so extend our
jurisdiction when it
enacted 28 U.S.C. § 1367. For the reasons that follow, I conclude that it
did not, and I therefore
must respectfully dissent from the majority opinion.
In relevant part, 28 U.S.C. § 1367 provides as follows:
(a) Except as provided in subsections (b) and (c) or
as expressly
provided otherwise by Federal statute, in any civil
action of which
the district courts have original jurisdiction, the
district courts shall
have supplemental jurisdiction over all other claims
that are so
related to claims in the action within such original
jurisdiction that
they form part of the same case or controversy under .
. . the
Constitution.
28 U.S.C § 1367(a) (emphasis added). Under the statute as drafted a court
can exercise
supplemental jurisdiction only if it has original jurisdiction. If it does
not have jurisdiction over
the underlying claim there is nothing to supplement. Here, the majority
first holds that the "Time
of Filing" rule does not apply and concludes that the district court lost
subject matter jurisdiction
once the RTC was dismissed. However, it then proceeds to declare that the
court nevertheless has
original jurisdiction, and can therefore exercise supplemental
jurisdiction because jurisdiction
originally attached when the RTC was a party. It can not be both ways. If
the "Time of Filing"
rule does apply, the district court had jurisdiction to enter summary
judgment. That jurisdiction,
however, must arise not from the supplemental jurisdiction conferred in 28
U.S.C. § 1367, but
from the substantive grant of jurisdiction contained in the Financial
Institutions Reform,
Recovery, and Enforcement Act of 1989, 12 U.S.C. § 1441a(1)(1) ("FIRREA").
If the "Time of
Filing" rule does not apply, there is no federal jurisdiction for any
jurisdiction under 28 U.S.C. §
1367 to supplement.
In holding to the contrary, the majority relies heavily upon Gutierrez
de Martinez
v. Lamagno, _____ U.S. ____, 115 S. Ct. 227 (1995), however that case did
not involve
supplemental jurisdiction under section 1367, and is therefore inapposite
to the inquiry here. The
issue in Lamagno was the scope of the jurisdictional grant that Congress
intended under the
Westfall Act. Under that Act if a federal employee is sued, the Attorney
General certifies
whether or not the employee was acting within the scope of his or her
federal employment at the
time of the injury that forms the basis of the plaintiff's claim. If the
Attorney General certifies
that the individual was within the scope of his or her employment, the
United States is
substituted as a party, and the action is removed to federal court. If the
Attorney General certifies
to the contrary, the United States is not substituted as a party, and the
action remains in state
court, absent some other basis for federal jurisdiction. In Lamagno, an
issue arose as to whether a
federal court can review the certification of the Attorney General.
Although the Court did discuss
the parameters of the judicial power contained in Article III, the
decision had nothing to do with
supplemental jurisdiction. Indeed, the statute was never cited. The same
is true of Garcia v. U.S.,
88 F3d 318 (5th Cir., 1996) which the majority also relies upon. That case
was also decided
under the Westfall Act, however, it had the further dimension of
determining whether a federal
court lacked subject matter jurisdiction over the underlying dispute if a
court reversed the
Attorney General's certification and concluded that the United States
could not be substituted as
a party. The court stated
[w]e agree with the Lamagno plurality that, because of
the
Attorney General's certification, there is an initial
colorable federal
question. Accordingly, we agree likewise that there
is no 'grave'
Article III problem in a district court retaining
jurisdiction after
rejecting the Attorney General's certification.
Garcia, 88 F3d. at 325. However, that conclusion was based upon
a very technical parsing of the
precise language of the statute. Thus, resolution of jurisdictional
issues under the statutory
framework of the Westfall Act does not advance our inquiry under 28 U.S.
C. § 1367 nearly so
far as the majority concludes. The same is true of nearly all of the
authority that the majority
relies upon for its holding as to supplemental jurisdiction.
Surprisingly, the majority cites Mullen v. Torrance. 22 U.S. (9 Wheat.)
537
(1824) and Clarke v. Mathewson 37 U.S. (12 Pet.) 164 (1838) to suggest
that section 1367
provides supplemental jurisdiction because the court had jurisdiction at
the outset of the
litigation. See Maj. Op. at 34. Those cases strongly suggest that the
majority is in error in not
relying upon the "Time of Filing" rule in determining if jurisdiction was
lost when the RTC was
dismissed. In Mullen, the Supreme Court stated "[i]t is quite clear, that
the jurisdiction of the
Court depends upon the state of things at the time of the action brought,
and that after vesting, it
cannot be ousted by subsequent events." 22 U.S. at 539. Similarly, in
Clarke, the Court noted
It has not been the course of the courts of the United
States to
consider their jurisdiction, after it has once
attached, as taken away
by the subsequent change of residence of the party. A
suit properly
commenced between citizens of different states still
proceeds;
although the parties may, before its termination,
become citizens of
the same state.
37 U.S. at 167. In St. Paul Mercury Indemnity Co. v. Red Cab, 303 U.S.
283 (1938) the
Supreme Court reiterated the "Time of Filing" rule as first pronounced in
Mullen. In Red Cab,
the Court held that jurisdiction must be established from the good faith
averments on the face of
the complaint, and once established it is not defeated by subsequent
events. "Events occurring
subsequent to the institution of suit which reduce the amount recoverable
below the statutory
limit do not oust jurisdiction." 303 U.S. at 289. This precedent does not
support the majority's
holding under section 1367, and it undermines the majority's reasoning for
rejecting the "Time of
Filing" rule. Nevertheless, assuming arguendo that this precedent can
properly be limited to
diversity jurisdiction as the majority suggests, the majority's reasoning
still leaves a court free to
exercise supplemental jurisdiction when it has no jurisdiction to
supplement.
More recently in Lujan v Defenders of Wildlife, 504 U.S. 555
(1992) (See Maj.
op. at 34, n.9) the Supreme Court again upheld the "Time of Filing" rule
in rejecting the idea that
the standing of parties who were added after litigation was begun could
create a sufficient case or
controversy for Art III jurisdiction even if the original plaintiffs
lacked standing.
The existence of federal jurisdiction ordinarily
depends on the facts
as they exist when the complaint is filed. . . . It
cannot be that, by
later participating in the suit, the State Department
and AID
retroactively created the redressability (and hence
jurisdiction) that
did not exist at the outset . . . There is no support
for the dissent's
novel contention, . . . that Rule 19 of the Federal
Rules of Civil
Procedure, . . . somehow alters our longstanding rule
that
jurisdiction is to be assessed under the facts
existing when the
complaint is filed.
405 U.S. at 569.
However, if the "Time of Filing" rule does not apply here, it is
nevertheless clear
that 28 U.S.C. § 1367 does not intend that a federal court exercise
jurisdiction over a state law
claim unless the federal claim that the state claim supplements is
properly before the court. I do
not think that the Congress intended to allow the exercise of federal
jurisdiction to resolve a
uniquely state claim where, as here, the federal court concludes that it
has no original federal
jurisdiction. We are, after all, interpreting a jurisdictional statute.
The policy of the statute calls for its strict
construction. . . . Due
regard for the rightful independence of state
governments, which
should actuate federal courts requires that they
scrupulously
confine their own jurisdiction to the precise limits
which the statute
has defined.
Healy v. Ratta, 292 U.S. 263, 270 (1934).
This is not a case where there are federal claims and state
claims that "derive from
a common nucleus of operative facts. . . such that [a plaintiff] would
ordinarily be expected to try
them all in one judicial proceeding." United Mine Workers of America v.
Gibbs, 383 U.S. 715,
725 (1966). Gibbs is the source of the "modern doctrine of pendent
jurisdiction", Carnegie-
Mellon University v. Cohill, 484 U.S. 343, 348 (1988), and it teaches
that, under the appropriate
circumstances, a federal district court possesses the discretionary power
to decide claims based
on state law. Gibbs, 383 U.S. at 725-726. As the majority notes, the
doctrine of pendent
jurisdiction is now codified in the supplemental jurisdiction statute. 28
U.S.C. § 1367.
However, as noted above, that jurisdiction only exists in civil actions
"of which the district courts
have original jurisdiction." Thus, the only way the majority can justify
its contrary result is by
relying upon the very "Time of Filing" rule that it rejects in the first
instance.
Nor is this a question of abuse of discretion where a court
properly has discretion
to exercise its supplemental jurisdiction. We are confronted with an
error of law arising from
what I believe is an erroneous application of a legal principle occasioned
by an incorrect reading
of the supplemental jurisdiction statute. I think it clear that the
district court's action can not
survive the plenary review we must give it. Accordingly, the majority's
emphasis on the fact that
the district court has already invested a great deal of time and resource
in adjudicating this matter
is irrelevant. It is axiomatic that a federal court cannot give itself
jurisdiction where none exists.
Although the resources that the district court has invested in resolving
this case would most
certainly be relevant to an exercise of the court's discretion to exercise
supplemental jurisdiction
of a case properly before it, it is irrelevant to the question of whether
the court had jurisdiction
over the state law claims to begin with. The original subject matter
jurisdiction that is the
condition precedent for the exercise of supplemental jurisdiction can not
be conferred by
considerations of convenience and efficiency.
The majority's interpretation of 28 U.S. C. § 1367 is even more
perplexing given
the recognition of the unique state interests that are implicated in a
foreclosure action, and the
limited scope of federal jurisdiction.
our reading of the statute is consistent with the
purpose of FIRREA
as expressed in the statute and its legislative
history. We also note
that our reading is consistent with general policies
underlying
federal jurisdiction. These principles include the
limited nature of
federal jurisdiction and the goal of not interfering
in the business of
the states.
The limited nature of federal jurisdiction needs
little discussion.
This principle marks a fundamental precept of the
American court
system. Owen Equip. & Erection Co. v. Kroger, 437 U.S.
365, 374
(1978). Interpreting [FIRREA] narrowly comports with
this
general rule.
Maj. op. at 22. Here again, the majority attempts to have its
analytical pie and eat it too.
However, I fail to see how the majority can justify giving a narrow
interpretation to the
jurisdictional inquiry under FIRREA (and thereby departing from Mullan and
its progeny) while
giving such an expansive interpretation to section 1367.
Here, the RTC had no interest in the New Jersey real estate that
was the subject of
the mortgage lien, nor was the RTC a promisee under any instruments that
created the disputed
indebtedness. The RTC is merely a successor in interest to some of the
parties to the original
lawsuit. That suit was actually initiated in state court by private
entities that had an interest in
the litigation. The RTC then removed it to state court, but is no longer a
party. Now, through
dubious reasoning, we allow the federal court to which this state action
was removed to
adjudicate purely state claims that are unconnected to the RTC or any
other federal agency.
New Rock's Amended Complaint avers:
3. Plaintiff, New Rock, is the sole
owner and holder of all right, title and interest in the
Indebtedness .. . pursuant to the Mortgage
Assignments . . .
31. New Rock has succeeded to all of
RTC's right title and interest . . . .
See Maj. op. at 4. If that is so, I do not understand how 28 U.S. C. §
1367 can be interpreted to
allow a federal court to adjudicate New Rock's dispute. Indeed, the
analytical sleight of hand
that allows the majority to rely upon the very principles it rejects has
the end result of giving us
the "jurisdiction by contract" it tried to avoid in refusing to apply the
"Time of Filing" rule in the
first instance. Id. at 10. ("[T]he RTC cannot pass its jurisdictional
rights by contract.")
Accordingly, I cannot join in the majority opinion.