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PEOPLE EX REL. COSENTINO v. FED. RESERVE BANK

January 3, 1984

PEOPLE OF THE STATE OF ILLINOIS ON THE RELATION OF JEROME COSENTINO, TREASURER OF THE STATE OF ILLINOIS, PLAINTIFF,
v.
FEDERAL RESERVE BANK OF CHICAGO AND MERCHANDISE NATIONAL BANK OF CHICAGO, DEFENDANTS.



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

MEMORANDUM AND ORDER

In counts 1 and 2 of the complaint the State charges that the Federal Reserve Bank and Merchandise National Bank violated their warranties of good title under the Uniform Commercial Code when presenting the checks with forged endorsements for payment. Ill.Rev.Stat., ch. 26, §§ 3-417(1)(a), 4-207(1)(a).*fn1 In count 3 the State charges Merchandise National Bank with violating an express guarantee of the genuineness of the prior endorsements on the checks. The State seeks the amount it paid on the checks, prejudgment interest and costs.

The State argues that this court has subject matter jurisdiction over the Federal Reserve Bank under 12 U.S.C. § 632, which reads in pertinent part:

  Notwithstanding any other provision of law, all suits
  of a civil nature at common law or in equity to which
  any Federal Reserve bank shall be a party shall be
  deemed to arise under the laws of the United States,
  and the district courts of the United States shall
  have original jurisdiction of all such suits; and any
  Federal Reserve bank which is a defendant in any such
  suit may, at any time before the trial thereof,
  remove such suit from a State court into the district
  court of the United States for the proper district by
  following the procedure for the removal of causes
  otherwise provided by law. No attachment or execution
  shall be issued against any Federal Reserve bank or
  its property before final judgment in any suit,
  action, or proceeding in any State, county,
  municipal, or United States court.

We agree. The state also requests the court to exercise pendent party jurisdiction over Merchandise National Bank. This we decline to do.

I.

Defendants' argument that this court lacks subject matter jurisdiction over the claim against the Federal Reserve Bank can be disposed of quickly. Their position is that § 632 only confers jurisdiction over "civil" suits against or on behalf of federal reserve banks. An action under the U.C.C. is not a "civil" action they claim. Hence, the argument goes, this court has no subject matter jurisdiction.

Section 632 applies, however, to "all suits of a civil nature" to which a federal reserve bank is a party. Nothing in the U.C.C. suggests that cases under it are not "civil in nature." The U.C.C. was designed primarily to simplify, clarify and promote the uniformity of commercial law. Ill.Rev.Stat., ch. 26, § 1-102. The U.C.C. makes clear its intimate connection with the common law in Section 1-103:

  Unless displaced by the particular provisions of this
  Act, the principles of law and equity, including the
  law merchant and the law relative to capacity to
  contract, principal and agent, estoppel, fraud,
  misrepresentation, duress, coercion, mistake,
  bankruptcy, or other validating or invalidating cause
  shall supplement its provisions.

Courts routinely look to the common law in U.C.C. cases. See e.g., Avco Delta Corp. Canada Ltd. v. United States, 459 F.2d 436 (7th Cir. 1972); Northern Trust Co. v. Oxford Speaker Co., 109 Ill. App.3d 433, 65 Ill.Dec. 113, 440 N.E.2d 968 (1st Dist. 1982); GNP Commodities Inc. v. Walsh Heffernan, Co., 95 Ill. App.3d 966, 51 Ill.Dec. 245, 420 N.E.2d 659 (1981).

In addition, § 632 was designed to give federal courts jurisdiction over actions involving federal reserve banks to the same extent they had prior to the passage of section 12 of the Act of February 13, 1925, c. 229, 43 Stat. 941 [now at 28 U.S.C. § 1349]. See pages 1264-1265 infra. During this earlier period federal courts exercised jurisdiction over claims against federal reserve banks much like the one at issue here. See Closter National Bank v. Federal Reserve Bank of New York, 285 F. 138 (2d Cir. 1922).

II.

The more difficult issue is whether this court has pendent party jurisdiction over Merchandise National Bank. Pendent party jurisdiction is the joinder of a party who is not otherwise subject to federal jurisdiction. Pendent claim jurisdiction, which is more common, is the joinder of a ...


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