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RYAN v. COSENTINO

October 4, 1991

WALTER E. RYAN, and BERNARD McKAY, Taxpayers for Themselves and all Others Similarly Situated, in the Name of and for the Benefit of the State of Illinois, Plaintiffs,
v.
JEROME COSENTINO, Treasurer, State of Illinois, and COSMOPOLITAN NATIONAL BANK OF CHICAGO, FAST MOTOR SERVICE INC., JAMES E. WELLS, GERALD J. DeNICHOLAS and ALEX M. VERCILLO, BROWN LEASING COMPANY (formerly known as CAPITOL LEASING CO.) and TERRY N. BROWN, Defendants



The opinion of the court was delivered by: NORDBERG

 JOHN A. NORDBERG, UNITED STATES DISTRICT JUDGE

 This taxpayer action suit was brought in state court on August 16, 1990 against then state treasurer Cosentino and the Cosmopolitan National Bank of Chicago to recover interest the state allegedly lost when Cosentino deposited excessive state funds in non-interest-bearing accounts in return for loans to Cosentino's financially-troubled company. On January 11, 1991, Brown Leasing Company (formerly known as Capitol Leasing Co.) and its president Terry N. Brown filed a complaint against Cosmopolitan alleging that they had been induced by the bank's misrepresentations to make loans to Cosentino. Upon learning of their role in the scheme, the plaintiff taxpayers added Brown Leasing and Terry Brown to the list of defendants in the present suit. The case was removed to this court on June 14, 1991. The plaintiffs seek to recover, in addition to lost interest, profits and other benefits allegedly earned by Cosentino and his affiliates. Brown Leasing and Terry Brown, in addition to Patrick Quinn, current treasurer of the state of Illinois, have filed motions to dismiss.

 Quinn's Motion to Dismiss

 Looking first to the motion brought by state treasurer Quinn, the parties dispute whether or not the Eleventh Amendment bars the claims against him. Count II of the second amended complaint seeks "a writ of mandamus against the State Treasurer compelling him to demand interest payments from Cosmopolitan and compelling him to disqualify Cosmopolitan as a state depository." The plaintiffs allege that the state treasurer was required to take these actions under the State Moneys Act, Ill. Rev. Stat. (1989) ch. 130, par. 20 et seq.

 Contrary to the plaintiffs assertions, Count II, in as much as it seeks action by the state treasurer in his official capacity, is clearly brought against the state. Although the Eleventh Amendment by its own terms does not bar suits against a state by its own citizens, the Supreme Court has consistently interpreted the provision to preclude such suits brought in federal court against an unconsenting state. Edelman v. Jordan, 415 U.S. 651, 663, 39 L. Ed. 2d 662, 94 S. Ct. 1347 (1974); Hans v. Louisiana, 134 U.S. 1, 33 L. Ed. 842, 10 S. Ct. 504 (1890). The plaintiffs argue, however, that the principle allowing plaintiffs to seek prospective relief against individual state defendants named in their official capacities is applicable here. That principle, first enunciated in Ex parte Young, 209 U.S. 123, 52 L. Ed. 714, 28 S. Ct. 441 (1908), allows a federal court to "enjoin state officials to conform their future conduct to the requirements of federal law, even though such an injunction may have an ancillary effect on the state treasury." Quern v. Jordan, 440 U.S. 332, 337, 59 L. Ed. 2d 358, 99 S. Ct. 1139 (1979) (emphasis added), citing Jordan, 415 U.S. at 667-668. In Pennhurst State School and Hospital v. Halderman, 465 U.S. 89, 79 L. Ed. 2d 67, 104 S. Ct. 900 (1984), the Supreme Court explicitly held that the principle granting prospective relief enunciated in Young is inapplicable in a suit brought against state officials on the basis of state law. Id., at 106. The Court went on to declare that this Eleventh Amendment bar cannot be overridden by principles of pendent jurisdiction. Id., at 121.

 The plaintiffs answer Quinn's Pennhurst argument by contending that because the entire action arises under the Financial Institutions, Reform, Recovery, and Enforcement Act of 1989 ("FIRREA"), the suit is deemed to arise, in its entirety, under the laws of the United States. According to plaintiffs, FIRREA provides blanket authority to "federalize" and remove all pending litigation involving seized institutions. Federal jurisdiction is provided for in 12 U.S.C. § 1819(b)(2):

 
(A) In general
 
Except as provided in subparagraph (D), all suits of a civil nature at common law or in equity to which the Corporation, in any capacity, is a party shall be deemed to arise under the laws of the United States.

 While the language of the statute allows for removal of actions involving strictly state law issues, see, e.g., In re Meyerland Co., 910 F.2d 1257 (5th Cir. 1990), all of the actions brought to the Court's attention, and, indeed, all of the cases discovered during independent research, lack the jurisdictional challenge to pendent party claims asserted in this suit. See, e.g., Lazuka v. Federal Deposit Ins. Corp., 931 F.2d 1530 (11th Cir. 1991); Meyerland, 910 F.2d 1257; Pernie Bailey Drilling Co. v. Federal Deposit Ins. Corp., 905 F.2d 78 (5th Cir. 1990); Federal Deposit Ins. Corp. v. Nichols, 885 F.2d 633 (9th Cir. 1989); Yankee Bank for Finance and Savings, FSB v. Hanover Square Assoc.-One Ltd. Partnership, 693 F. Supp. 1400 (N.D. N.Y. 1988). Indeed, while several of these cases involved pendent parties, each of the pendent party claims required the resolution of a dispute with the bank for which the FDIC had been appointed receiver. In this case, on the other hand, the claim against defendant Quinn requires only affirmative action on his part; thus, the FDIC through Cosmopolitan is, at most, tangentially implicated in Count II.

 Federal Deposit Ins. Corp. v. Israel, 739 F. Supp. 1411 (C.D. Cal. 1990) is the only case the Court has come across in which the propriety of ancillary (now "supplemental") jurisdiction was discussed. In Israel, the cross-claims and counter-claims filed in the case implicated pendent parties. In deciding whether jurisdiction over these pendent party claims was proper, the court stated:

 
To read the language of 12 U.S.C. section 1819 broadly would be inconsistent with the interpretation of . . . other jurisdictional statutes and would eviscerate the rules that have grown up around them. The words "civil actions" or "civil suits" have been read to mean specific claims and not just the general theme of the suit.
 
Thus, 12 U.S.C. section 1819(b)(2) must be read as an explicit grant of jurisdiction only over claims to which the FDIC is a party. This interpretation keeps the FDIC in federal court, subject to the proviso, but limits the right of otherwise statebound litigants to haul their disputes into federal court on the coattails of an FDIC intervention. It accords with the canon that a Congressional grant of jurisdiction should be read narrowly, Healy v. Ratta, 292 U.S. 263, 54 S. Ct. 700, 78 L. Ed. 1248 (1934), and that "a grant of jurisdiction over claims involving particular parties does not itself confer jurisdiction over additional claims by or against different parties." Finley, 109 S. Ct. at 2010.

 The Court in Israel went on to find that it lacked subject matter jurisdiction over the pendent party claims. This logic is persuasive. FIRREA was intended to ensure that claims involving the FDIC could always be heard in a federal forum. Congress could not have intended that every conceivable supplemental claim would be "federalized" by virtue of an often tenuous connection to the claim involving the FDIC. The present case is a case in point: Count II, which contains the only claim against Quinn, is a claim for injunctive relief against a state actor under state law; the FDIC ...


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