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.,
Appellants.
No. 95-5306.
United States Court of Appeals,
Third Circuit.
Argued on Dec. 13, 1995.
Decided Dec. 10, 1996.
Deborah A. Silodor (argued), Solomon and Weinberg, Hackensack, NJ, for Appellee.
Gregory R. Haworth (argued), Carl A. Rizzo, Christine R. Smith, Cole, Schotz, Meisel, Forman & Leonard, Hackensack, NJ, for Appellants.
Before: ROTH, LEWIS and McKEE, Circuit Judges.
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),1 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.,
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.,
In arguing mootness because of the foreclosure sale, New Rock relies on a Seventh Circuit case, Federal Deposit Ins. Corp. v. Meyer,
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,
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,
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.
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.
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.,
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,
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),
In determining the plain meaning of FIRREA, we have consistently looked to its legislative history. Smith v. Fidelity Consumer Discount Co.,
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.,
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.,
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.4 Cf. Hudson United Bank,
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,
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)' § 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,
Griffin based its conclusion primarily on policy concerns.6 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.
In response to Griffin, the district court in Mill Investments, Inc. v. Brooks Woolen Co., Inc.,
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.,
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 generally Adams v. Madison Realty & Dev., Inc.,
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,
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.,
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 ---- - ----,
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,
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. 511 U.S. at ----,
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.,
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.,
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.,
We were equally quick to reject the time of filing rule in Lovell Mfg. v. Export-Import Bank,
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,
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,
The Supreme Court delineated the modern constitutional bounds of pendent jurisdiction7 in United Mine Workers v. Gibbs,
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,
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 ----,
A four justice plurality cited to Gibbs in concluding that any Article III problem was not "a grave one."8 515 U.S. at ----,
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 ----,
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 Lamagno. 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 Lamagno, 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 Lamagno 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.9 See Garcia v. U.S.,
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. Mollan v. Torrance,
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.,
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?12 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.,
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.,
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,
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,
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.,
We are not willing to defeat the common sense policy of pendent jurisdiction--the conservation of judicial energy and the avoidance of multiplicity 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,
Accordingly, although we are mindful that jurisdictional statutes must be construed narrowly, Healy v. Ratta,
Finally, § 1367 has been read by the Fourth Circuit to provide jurisdiction in an analogous situation arising in diversity. Shanaghan v. Cahill,
... 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,
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,
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.,
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,
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.
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 1505. 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,
[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,
Surprisingly, the majority cites Mollan v. Torrance,
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.
More recently in Lujan v. Defenders of Wildlife,
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.
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,
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,
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,
Maj. op. at 1502. 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 Mollan 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 1495. 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.2 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 1498. ("[T]he RTC cannot pass its jurisdictional rights by contract.")
Accordingly, I cannot join in the majority opinion.
Notes
As discussed in Part III.B.1, neither the RTC nor the current plaintiff/appellee, New Rock Asset Partners, grounded jurisdiction on anything more specific than a general reference to § 1441a(l)
Other courts have made oblique references to the problem or included language that appears applicable in isolation. When examined closely, these cases fail to address the issue. See McCarthy Western Constr. v. Phoenix Resort Corp.,
It is worth noting that the RTC has not issued an agency interpretation of the statute, to which in the event of statutory ambiguity we would give deference. Chevron, U.S.A., Inc. v. Natural Resources Defense Council,
Our decision in Spring Garden Assoc. L.P. v. Resolution Trust Corp.,
Subsequent Fifth Circuit cases have affirmed and applied Griffin without revisiting the issue. See, e.g., Bank One Tex. N.A. v. Morrison,
Griffin also held that because jurisdiction had existed at the time of removal, it continued throughout the case.
Pendent state claims are generally claims by the plaintiff over which the court has jurisdiction based on the plaintiff's federal claims. Ancillary claims are generally claims other than those of the plaintiff, such as compulsory counterclaims. See Ambromovage v. United Mine Workers,
Justice O'Connor, who concurred in the outcome and in part of Justice Ginsburg's opinion for the Court, did not join this part of the opinion. 515 U.S. at ----,
The dissent argues that Lamagno involved the Westfall Act and had "nothing to do with supplemental jurisdiction" but acknowledges that the opinion did "discuss the parameters of judicial power contained in Article III." Dissenting Opinion at 1512. To the contrary, we consider that supplemental jurisdiction has everything to do with Article III. We cited to Lamagno to support the conclusion that Congress had the power under Article III to keep in federal court a case which had been transformed from a federal into a state case. The dissent does not dispute this conclusion. The dissent also does not address our grounds (set forth on pages 1507-10) for concluding that Congress, with § 1367, intended to exercise its broadest power under Article III to give the federal courts the discretion to hear a case after dismissal of the RTC. Instead, the dissent argues that Lamagno does not address the language of § 1367. Indeed it does not, but our purpose in discussing Lamagno was not to analogize the Westfall Act to § 1367 but to analyze the limits of Article III jurisdiction
In Lujan v. Defenders of Wildlife,
The dissent argues that because we do not apply the "Time of Filing Rule," the district court did not have "original jurisdiction" under § 1367. We disagree and conclude that in § 1367 Congress, with an eye toward conserving judicial resources, gave the district court the discretion to continue to hear the case, although the district court also had the discretion not to do so. See H.R.Rep. No. 101-734, 101st Congress, 2d Sess., reprinted in 1990 U.S.C.C.A.N. 6802, 6874 (supplemental jurisdiction promotes economical resolution of cases). The reasons for our conclusion that § 1367 applies are set forth on pages 1507-10 of the opinion. In reaching the opposite conclusion the dissent addresses none of those reasons
The dissent repeatedly suggests that we do not address this question. Dissenting opinion at 1511, 1515 n. 2. The dissent also does not recognize that Congress' intent in enacting § 1367 is related to the scope of Article III, as we explain on pages 1508-10
Although we have held that § 1441a does not provide for continuing jurisdiction over this action, it does not expressly exclude it. Cf. Aldinger v. Howard,
In Rosado the plaintiffs alleged that the New York Social Services Law was incompatible with federal law and violated the Constitution. Pursuant to federal statute, a district court panel of three judges determined that the constitutional claim was moot. One judge then ruled on the merits of the statutory claim.
The Court of Appeals held that the individual district court judge did not have jurisdiction over the statutory claim because the Department of Health, Education, and Welfare was vested with the power to determine whether the state statute was incompatible with federal welfare law. It concluded that the "single judge at no time had jurisdiction over the constitutional claim" and that "with the dissolution of the three-judge court, the statutory claim was no longer pendent to any claim at all," much less one that could confer jurisdiction. Id. at 402 n. 2,
Our decision in Valhal Corp. v. Sullivan Assoc., Inc.,
I respectfully submit that, once again, the majority asks the wrong question, and that causes them to once again come out at the wrong place. At the outset of its supplemental jurisdiction analysis the majority asks: "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?" See Maj. op. at 1505. However, the state claims existed before the RTC became involved, and the dismissal of the RTC did not cause the federal claims to "morph" into state claims