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Federal Deposit Insurance Corp. v. Mudd

April 12, 2010

FEDERAL DEPOSIT INSURANCE CORPORATION, ETC., PLAINTIFF,
v.
CHARLES T. MUDD, ET AL., DEFENDANTS.



The opinion of the court was delivered by: Milton I. Shadur Senior United States District Judge

MEMORANDUM OPINION AND ORDER

This mortgage foreclosure action was initiated by Federal Deposit Insurance Corporation ("FDIC") as Receiver for First Bank of Beverly Hills. To that end FDIC properly invoked federal jurisdiction under 28 U.S.C. §1345, which grants the district courts "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"--a statute that is expressly brought into play by the provision of 12 U.S.C. §1819(b)(1) that confirms FDIC "shall be an agency of the United States for purposes of section 1345 of Title 28" and by the corollary statute that confers "federal court jurisdiction" over any FDIC-initiated lawsuit, 12 U.S.C. §1819(b)(2)(A)("Section 1819(b)(2)(A)"):*fn1

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

Now, in an unsurprising development, FDIC'S interest has been acquired by First Chicago Bank & Trust ("First Chicago," originally named as a co-defendant in the Complaint), which has noticed up for presentment on April 13*fn2 a motion for its substitution as the proper party plaintiff in place of FDIC pursuant to Fed. R. Civ. P. 25(c). Although the motion is silent as to subject matter jurisdiction, that change in status has reawakened this Court's concern as to the obligation succinctly stated nearly a quarter century ago in Wis. Knife Works v. Nat'l Metalcrafters, 781 F.2d 1280, 1282 (7th Cir. 1986):

The first thing a federal judge should do when a complaint is filed is check to see that federal jurisdiction is properly alleged.

Indeed, that judicial responsibility was even more firmly underscored five years ago in Wernsing v. Thompson, 423 F.3d 732, 743 (7th Cir. 2005)(internal citations and quotation marks omitted):

Jurisdiction is the power to declare law, and without it the federal courts cannot proceed. Accordingly, not only may the federal courts police subject matter jurisdiction sua sponte, they must.

That mandate has triggered some research into the question whether subject matter jurisdiction, grounded as it was in FDIC's presence in this lawsuit as an agency of the United States, continues to exist once that underpinning has been removed. Although the research has uncovered no Seventh Circuit case dealing with the subject, two other Courts of Appeals have given an affirmative answer to that question (the Fifth Circuit in Adair v. Lease Partners, Inc., 587 F.3d 238, 242-45 (5th Cir. 2009)*fn3 and the Second Circuit in FDIC v. Four Star Holding Co., 178 F.3d 97, 100-01 (2d Cir. 1999)), while the Third Circuit has rejected that result and has come to the opposite conclusion in New Rock Asset Partners, L.P. v. Preferred Entity Advancements, Inc., 101 F.3d 1492, 1498-1503 (3d Cir. 1996).*fn4

It is of course conventional wisdom that the existence or nonexistence of federal subject matter jurisdiction is determined as of the date of filing (or in a removal situation, as of the date of removal to the District Court). And it has often been said, almost always in diversity cases, that post-filing or post-removal changes in the parties' circumstances do not destroy that once-established jurisdiction. If the rule were otherwise, that would create too great an opportunity for game playing (for example, a plaintiff whose state court action had been removed to the federal court on a diversity basis could force a remand by the simple expedient of assigning the claim to an assignee that shared the defendant's state of citizenship).

So it is that Griffin and later Four Star focused on policy considerations, rather than honing in on the statutory language as New Rock sought to do (more on that subject a bit later). And although Adair most recently discussed the New Rock treatment of the subject in greater detail, it ultimately adhered to Griffin pursuant to another fundamental policy--as the court said (587 F.3d at 244):

As Griffin is Fifth Circuit precedent, we are bound by its holding.

As stated earlier, only the thoughtful opinion by Judge Jane Roth in New Rock began by focusing, as courts are supposed to do in such situations, with an effort at statutory interpretation. As New Rock, 101 F.3d at 1498 (numerous citations and internal quotation marks omitted, brackets in original) put it:

This process begins with the plain language of the statute. Where...the statute's language is plain, the sole function of the court is to enforce it according to its terms. Plain meaning is conclusive, except in the rare cases [in which] the literal application of a statute will produce a result demonstrably at odds with the intentions of its drafters.

In this instance, as stated earlier, the particularly relevant statute is Section 1819(b)(2)(A), which vests federal court jurisdiction in "all suits of a civil nature at common law or in equity to which the Corporation [FDIC], in any capacity, is a party" (emphasis added). And of course FDIC's assignment to First Chicago in this ...


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