United States District Court, Central District of Illinois, Springfield Division
February 14, 1986
THE FEDERAL LAND BANK OF ST. LOUIS, A CORPORATION, PLAINTIFF,
ALLEN N. KEISER; CAROL A. KEISER; THE UNITED STATES OF AMERICA, ACTING THROUGH THE FARMERS HOME ADMINISTRATION, UNITED STATES DEPARTMENT OF AGRICULTURE; THE FIRST NATIONAL BANK OF LITCHFIELD, A NATIONAL BANKING ASSOCIATION, TRACE PETROLEUM AND UNKNOWN OWNERS, DEFENDANTS.
The opinion of the court was delivered by: Mills, District Judge:
OPINION AND ORDER
Defendants' arguments for federal jurisdiction are specious.
The case is remanded to state court.
The matter presently before the Court is a motion by the Federal Land
Bank for remand to the Circuit Court for the Fourth Judicial Circuit of
Illinois at Hillsboro.
The bank brought a mortgage foreclosure suit under Ill.Rev.Stat., Ch.
110, ¶ 15-101 et seq., in the state circuit court, and the Defendants
have removed that case here, claiming that there is original federal
question jurisdiction under 28 U.S.C. § 1331, which may be removed to
the district court under 28 U.S.C. § 1441 (b). No other grounds are
alleged to exist for original jurisdiction here, such as diversity.
The nonfederal defendant is trying to "boot strap" his way here by the
use of the Plaintiff's federal status. The defendant has no standing to
do this. The federal Plaintiff could have chosen the federal forum, which
was provided for its protection from local prejudice. They have not
chosen to avail themselves of this and since they are bringing the action
they may choose the forum by "determining the theory of the action, and
so long as fraud is not involved, [they] may defeat removal to the
federal courts by avoiding allegations which provide a basis for the
assertion of federal jurisdiction." Jones v. General Tire & Rubber Co.,
541 F.2d 660, 664 (7th Cir. 1976).
In general, to remove a case from state court to a United States
district court the defendant must establish at least two requisites: that
"the action was properly commenced in the state court, and that it could
have been originally commenced in federal court." Nuclear Engineering
Co. v. Scott, 660 F.2d 241, 248 (7th Cir. 1981). "Removal is proper where
the real nature of the claim asserted in the complaint is federal,
whether or not so characterized by the Plaintiff." Jones v. General Tire
& Rubber Co., 541 F.2d 660, 664 (7th Cir. 1976). Furthermore, "A federal
law, statute, or question, a right or immunity created by the
Constitution or . . . law of the United States must be an element, and an
essential one, of the Plaintiff's cause of action . . . i.e. . . . , the
federal nature of the claim must be a basic issue in the case." Id. These
cases are cited with approval in People of the State of Illinois v.
Kerr-McGee Chemical Corp., 677 F.2d 571, 575 (7th Cir. 1982), where the
court went on to say, "a federal question must appear on the face of the
complaint . . . [and] a defendant's assertion of an issue of federal law
in the pleadings or in the petition for removal does not create a federal
question. Phillips Petroleum Co. v. Texaco, Inc., 415 U.S. 125, 127-28
[94 S.Ct. 1002, 1003-04, 39 L.Ed.2d 209] (1974)."
Also, "the removal statute should be construed narrowly and against
removal, see Shamrock Oil and Gas Corp. v. Sheets, 313 U.S. 100, 108 [61
S.Ct. 868, 872, 85 L.Ed. 1214] (1941)," Kerr-McGee Chemical Corp., 677
F.2d at 576.
More specifically—and most pertinent to the case at hand—is
the case of The Federal Land Bank of Columbia v. Cotton, 410 F. Supp. 169
(N.D.Ga. 1975). This case was initiated by the Federal Land Bank against
defendant Cotton in the Georgia state court to foreclose upon a mortgage
because the defendant Cotton had defaulted on a promissory note. The
defendant had attempted to remove the case to the United States District
Court, using the same arguments that are found in the case before the
court, but to no avail.
Cotton argued that the case arose under the laws of the United States
because the plaintiff is a federally chartered corporation formed under
the Federal Farm Loan Act, 12 U.S.C. § 2011 et seq. [sic]. The court
noted that due to 28 U.S.C. § 1349,*fn1 "corporations organized
under federal law as [a] party," "federally-chartered corporations cannot
sue or be sued in federal court merely because they are federally
chartered, unless the United States government owns 51% of the capital
stock." (Emphasis the court's.) Cotton at 170. The only way this case
could be removed is for the Plaintiff to allege a "violation of the
regulatory guidelines governing such organizations." Id. The court noted
in Cotton (and the same is true here) that "plaintiff is merely seeking
to enforce a contract right pursuant to the laws of the State." Id.
The Defendant before us, and the one in Cotton, argue that the federal
land banks were agencies of the federal government and so removal would
be proper under 28 U.S.C. § 1345. That section of the Code states:
"Except as otherwise provided by Act of Congress, the district courts
shall have original jurisdiction of all civil actions, suits or
proceedings commenced by the United States, or by any agency or officer
thereof expressly authorized to sue by Act of Congress." However, the
term Agency is defined at 28 U.S.C. § 451 and states in part: "The
term `agency' includes . . . any corporation in which the United States
has a proprietory interest, unless the context shows that such term was
intended to be used in a more limited sense." The court in Cotton read
this section in tandem with § 1349, supra, and found that a federally
chartered corporation could not be an "agency" "unless the government has
a substantial proprietory interest in the corporation or exercised
considerable control over operation and policy of the corporation."
Cotton at 171.
For the purposes of comparison, the defendant in Cotton and the
Defendant here wish to compare the Federal Savings and Loan Insurance
Corporation (FSLIC) with the federal land banks because FSLICs have been
found to be "agencies" of the federal government and so there is original
federal jurisdiction in all cases involving them. The court in Cotton
found that federal land banks were "obviously meant to be a private,
rather than governmental, corporation which" is merely subject to various
federal regulations. 12 U.S.C. § 2001 (a), et seq.; Cotton, id. 171.
Thus, the court in Cotton held that there was no subject matter
jurisdiction and allowed the remand.
When we look to 12 U.S.C. § 2011 "Establishment; Title; Branches,"
[of Federal Land Banks] the first sentence declares in part that "Federal
land banks . . . shall continue as federally chartered instrumentalities
of the United States," (emphasis ours). Further, that the Farm Credit
Administration may modify their charters consistent with
12 U.S.C. § 2001 et seq. Specifically, at § 2012 in the
preamble, it states that Farm Credit Administration shall supervise the
Federal Land Banks, and at * 2012 (19), the Federal Land Banks shall,
"Perform any function delegated to it by the Farm Credit Administration."
The Farm Credit Administration is expressly made "an independent agency
of the executive branch of the Government," 12 U.S.C. § 2241. It
appears, and Defendant relies on the fact, that the Federal Land Bank is
an instrumentality of an agency of the U.S. Government. But this has no
bearing on jurisdiction. Also, 31 U.S.C. § 9101 (2)(F) defines
federal land banks as "mixed ownership" corporations, whereas at §
9101(3)(E) FSLICs are listed as a "wholly owned government corporation."
Thus, the dichotomy between the two is strengthened, contrary to what
Defendant argues. Moreover, this section says nothing about original
There are also several differences in wording of the two statutes that
form these two corporations (federal land banks and FSLICs). The statute
that forms federal land banks, 12 U.S.C. § 1021, does not rule out
the applicability of other statutes that may effect its status as a
federal instrumentality, such as § 1349. Furthermore, the statute
that pertains to the bank's ability to be sued, § 2033(4), only
states that it can "sue or be sued," but spells out no specific
designation where these suits can be brought.
The statute that governs the "jurisdiction and enforcement" of FSLICs,
12 U.S.C. § 1730 (k)(1) is very explicit, and it limits and mandates
where jurisdiction will be for FSLICs. Section 1730(k)(1)(A) begins,
"Notwithstanding any provision of law the corporation shall be deemed to
be an agency of the United States within the meaning of section 451 of
Title 28 . . Therefore, § 1349, supra, would not apply to take FSLICs
out of the district court. Furthermore, section 1730(k)(1)(B) states
that, "any civil action, suit or proceeding to which the corporation
shall be party shall be deemed to arise under the laws of the United
States and the United States district courts shall have original
jurisdiction thereof . . ." This section and section 1730(k)(2) continue
on in detail to enumerate all of the situations in which there is
original federal jurisdiction. (One such clause allows jurisdiction
without regard to the amount in controversy.)
Thus, there are palatable reasons why any analogy between Federal Land
Banks and FSLICs and their amenability to district court jurisdiction is
mistaken. FSLICs have expressly been given exclusive jurisdiction whereas
the Federal Land Banks are only allowed "to sue or be sued, " subject to
the normal rules that govern federal jurisdiction.
Furthermore, the land bank alleges that its capital stock is not held
by the federal government. Thus, section 1349 should make the bank a
private corporation. This allegation must be true as the statute that
controls the bank's ability to issue stock, 12 U.S.C. § 2013,*fn2
mandates who may hold that stock. Voting stock is held by federal land
bank associates (made up of borrowers from federal land banks,
12 U.S.C. § 2031, 2034),*fn3 agents of borrowers and borrowers.
Nonvoting stock may be issued to the governor of the Farm Credit
Administration. Dividends can only be paid to voting stockholders. Thus,
if the bank is abiding by the statute only the associations of private
citizen borrowers hold the stock, and section 28 U.S.C. § 1349 would
make the land bank subject to the regular rules governing the
jurisdiction of civil cases in the federal courts.
But, even if we assume—arguendo —that Cotton is wrong,
there is still no basis for removal because the subject matter of this
cause before us is the validity of the mortgage contract as construed by
state law. The district court, due to 28 U.S.C. § 1349, does not have
original subject matter jurisdiction over such a suit, nor is there any
other ground (such as diversity) that would establish jurisdiction.
Section 28 U.S.C. § 1441 (a) therefore is inapplicable. Section
1441(b) of 28 U.S.C. allows removal if the district court has original
jurisdiction by virtue of the claim or right "arising under" the
constitution, treaties or laws of the United States. As stated above,
this claim arises under Illinois law, not federal, and the bank is making
no constitutional claims. Furthermore, the last sentence of §
1441(b) would preclude the Defendant's removal entirely: "Any other such
action shall be removable only if none of the parties in interest and
properly joined and served as defendants is a citizen of the state in
which such action is brought." (Emphasis ours.) Defendant Keiser and all
the other Defendants but one-Trace Petroleum of Hazelwood,
Missouri—are residents of Illinois.
Since there is no claim upon which the original jurisdiction of this
Court can rest, the case must be remanded to the Illinois circuit court.
The Defendant raises other federal is. sues which are defenses. A fifth
amendment due process denial is raised and there is an allegation that
the Plaintiff has violated the RICO Act, 18 U.S.C. § 1964 (c), for
which there seems to be absolutely no basis. These defenses are raised in
the hope that they may raise a federal question by which to base
removal. There is no question that this is erroneous. As early as 1894 it
was established in Tennessee v. Union and Planter's Bank, et al.,
152 U.S. 454, 14 S.Ct. 654, 38 L.Ed. 511 (1894), "that the right of the
plaintiff to sue cannot depend on the defense which the defendant may
choose to set up. His right to sue is anterior to that defense, and must
depend on the state of things when the action was brought." Id. at 459,
14 S.Ct. at 655. Furthermore,
a cause cannot be removed from a state court simply
because, in the progress of the litigation, it may
become necessary to give a construction to the
Constitution or laws of the United States . . . .
whether a party claims a right under the Constitution
. . . is to be ascertained by the legal construction
of its own allegations, and not by the effect
attributed to those allegations by the adverse party.
Id. at 460, 14 S.Ct. at 656.
In Franchise Tax Board of the State of California v. Construction
Laborers' Vacation Trust for Southern California, 463 U.S. 1, 103 S.Ct.
2841, 2847, 77 L.Ed.2d 420 (1983), the Court said that this rule, which
has become known as the "well pleaded complaint" rule, is still in full
force and effect, and further opined that "for better or worse, under the
present statutory scheme as it has existed since 1887, a defendant may not
remove a case to federal court unless the Plaintiffs complaint
establishes that the case `arises under' federal law." Id. 103 S.Ct.
2846. And, "since 1887 it has been settled law that a case may not be
removed to federal court on the basis of a federal defense ., even if the
defense is anticipated in the plaintiff's complaint, and even if both
parties admit that the defense is the only question truly at issue in the
case." 103 S.Ct. 2848. This case emphasizes the impossibility of
defendant Keiser's position and the fact that we can only remand this
case to the circuit court.
Therefore, it is ORDERED that this case be REMANDED to the Circuit
Court for the Fourth Judicial Circuit of Illinois in Hillsboro,
Montgomery County, Illinois, along with all costs, fees, and
disbursements INCURRED, because this court lacks original jurisdiction
over the cause, and the Plaintiff has chosen the state court as its