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GOLDMAN v. FIRST FED. SAVINGS & L. ASS'N OF WILMETTE

March 1, 1974

MICHAEL T. GOLDMAN AND JUDITH R. GOLDMAN, INDIVIDUALLY ON BEHALF OF THEMSELVES AND ON BEHALF OF ALL PERSONS SIMILARLY SITUATED, PLAINTIFFS,
v.
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF WILMETTE, DEFENDANT.



The opinion of the court was delivered by: Marovitz, District Judge.

MEMORANDUM OPINION

Motion to Dismiss

I.

Defendant has accurately summarized the facts of this case in its Memorandum in Support of Motion to Dismiss the Complaint, and we reproduce those facts substantially as stated therein.

This is a lawsuit brought by the plaintiffs, husband and wife, to recover a $36.25 refund of interest which had been prepaid to the defendant First Federal Savings of Wilmette (hereinafter referred to as "First Federal") on a mortgage loan made by the defendant. Michael Goldman and his wife Judith purchased a home in Highland Park, Illinois, on March 1, 1966, and partly financed it by borrowing $22,000 from First Federal. This loan was secured by a mortgage. Pursuant to the loan agreement, the Goldmans were required to prepay each month's interest on the first day of the month based on the balance owing for the prior month. On June 5, 1973, the Goldmans did in fact make their mortgage payment including interest for the entire month of June 1973. After making this payment, the plaintiffs then notified the defendant, on June 6, 1973, that they intended to pay off their mortgage loan on June 21, 1973, which they in fact did on that date. Subsequently, the Goldmans requested that First Federal return the prepaid interest for the period following June 22, 1973, which plaintiffs plead amounts to $36.25, which First Federal refused to do.

The plaintiffs have filed a four-count class action complaint. In Count I they seek a return of the "unearned prepaid interest" on the ground that this constitutes a prepayment penalty which is not provided for in the loan agreement and thus in violation of a federal regulation. Count II seeks a declaratory judgment that the defendant is in violation of a federal regulation and an injunction enjoining such conduct. Count III is based on pendent jurisdiction and pleads that the defendant has acted in breach of its contract with the Goldmans by collecting the alleged unearned prepaid interest. And, Count IV is based on pendent jurisdiction and seeks a declaratory judgment that the defendant has illegally retained the prepaid interest and an injunction enjoining such conduct.

This Motion to Dismiss under Rule 12(b) of the Federal Rules of Civil Procedure is filed on the grounds that the matters pleaded raise only state matters involving the contractual relationship between the Goldmans and the First Federal, as pleaded in Counts III and IV and therefore this Court lacks subject matter jurisdiction to hear the case. The motion also seeks to dismiss the complaint for failure to state a cause of action upon which relief can be granted. The motion to dismiss the class action will be briefed at a subsequent time, after some discovery has been obtained by both sides; it is not under consideration herein.

II.

Plaintiff predicates jurisdiction on 28 U.S.C. § 1337, asserting that this cause arises under an Act of Congress regulating commerce, to wit, the Home Owner's Loan Act of 1933, as amended, 12 U.S.C. § 1461 et seq., and Regulations issued by the Federal Home Loan Bank Board pursuant to that Act, to wit, 12 C.F.R. § 545.6 et seq., and particularly § 545.6-12(b), which provides in part:

  "Borrowers from Federal associations shall have the
  right to prepay their loans without penalty unless
  the loan contract makes express provision for a
  prepayment penalty."

Defendant argues that the Home Owner's Loan Act of 1933 is not an Act regulating commerce, citing as authority Mamber v. Second Federal Savings and Loan Association of Boston, 275 F. Supp. 170 (D.Mass. 1967), and therefore no jurisdiction obtains under § 1337. However, as plaintiff notes, there seem to be no cases in accord with this decision, and several which hold to the contrary; we believe the better reasoned cases are those which find that the Act is one which regulates commerce for purposes of giving § 1337 jurisdiction.

In Gibson v. First Federal Savings and Loan Association, 347 F. Supp. 560 (E.D.Mich. 1972), an action was brought against the federal savings and loan association by mortgagors who alleged that the effect of defendant's mortgage loan provisions was to collect in advance escrow monies on an equivalent of one-eleventh rate per month of estimated taxes, assessments, etc., in violation of the one-twelfth rate per month provision of governing federal regulation. On a defense motion to dismiss for lack of jurisdiction, the court held that "it appears clear that the Home Owner's Loan Act is an act regulating commerce." 347 F. Supp. at 564. For authority, the court relied on the Second Circuit opinion of Murphy v. Colonial Federal Savings and Loan Association, 388 F.2d 609 (2nd Cir. 1967) (suit to obtain membership lists of persons eligible to vote for directorships at the defendant institution), wherein Justice Friendly said,

  "It is true that federal regulation of finance is not
  grounded in the commerce power alone. As Chief
  Justice Hughes explained in Norman v. B. & O.R.R.,
  294 U.S. 240, 303, 55 S.Ct. 407, 414, 79 L.Ed. 885
  (1935):"
  "`The broad and comprehensive national authority over
  the subjects of revenue, finance and currency is
  derived from the aggregate of the powers granted to
  the Congress, embracing the powers to lay and collect
  taxes, to borrow money, to regulate commerce with
  foreign nations and among the several states, to coin
  money, regulate the value thereof, and of foreign
  coin, and fix the standards of weights and measures,
  and the added express power ...

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