Ramirez-Pena v. Commonwealth of Puerto Rico et al
Filing
46
OPINION AND ORDER granting 38 Motion to Remand to State Court. Signed by US Magistrate Judge Marcos E. Lopez on 6/29/12. (Lopez, Marcos)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
JUAN L. RAMÍREZ PEÑA,
Plaintiffs,
v.
CIVIL NO.: 11-2127 (MEL)
COMMONWEALTH OF PUERTO RICO, et
al.,
Defendant.
OPINION AND ORDER
I.
FACTUAL AND PROCEDURAL BACKGROUND
On July 16, 2011, plaintiff Juan Ramírez Peña filed suit under Article 1802 of the Puerto
Rico Civil Code, 31 L.P.R.A. § 5141, in the Commonwealth Court of First Instance, San Juan
Part, for damages allegedly sustained when his car fell into a hole while he was driving in front
of a Eurobank in San Juan. Docket No. 8-1. The complaint originally named as defendants the
Commonwealth of Puerto Rico (“the Commonwealth”), the Puerto Rico Department of
Transportation and Public Works (“DTPW”), and the Puerto Rico Aqueduct and Sewer
Authority (“PRASA”), but subsequently was amended to include Eurobank. Docket No. 1.
Because the Federal Deposit Insurance Corporation (the “FDIC”) had been appointed receiver of
Eurobank on April 30, 2010, the FDIC timely removed the case on November 21, 2011 under 12
U.S.C. § 1819(b)(2), which confers federal jurisdiction over any case in which the FDIC is a
party and allows removal when the FDIC is added or substituted as a party.
Subsequently, the FDIC made a formal determination that insufficient assets existed in
the receivership of Eurobank, San Juan, to make any distribution on general unsecured claims,
1
and that such claims would thus “recover nothing and have no value.” See 76 Fed. Reg. 50733
(Aug. 16, 2011). Consequently, the FDIC filed a motion to dismiss arguing that 12 U.S.C. §
1821(i)(2), which limits the FDIC’s liability to the assets of the financial institution in
receivership, made the suit against it an exercise in futility. Pointing out that Eurobank in
receivership had no assets to satisfy unsecured claims such as plaintiff’s, the FDIC argued that it
would be unable to provide any remedy to plaintiff and that the claims against it were therefore
moot. Docket No. 13. Shortly thereafter the Commonwealth and DTPW also filed a motion to
dismiss on Eleventh Amendment immunity grounds. Docket No. 29.
On March 1, 2012, both motions to dismiss were granted, leaving PRASA as the only
defendant in the case at the federal forum. Docket No. 32; Docket No. 35; Docket No. 36.
PRASA then filed a motion to remand, arguing that, without the FDIC as a party, the subject
matter jurisdiction granted by 12 U.S.C. § 1819(b)(2)(A) is also gone. It therefore moves the
court to remand this case pursuant to 28 U.S.C. § 1447(c), which obliges a district court to
remand a case if, at any time before judgment, it appears that the court lacks subject matter
jurisdiction. 28 U.S.C. § 1447(c).1 PRASA adds that plaintiff may re-file his suit against the
Commonwealth and DTPW in state court, where they are not shielded from suit by the Eleventh
Amendment, meaning that that there will be two parallel actions if the instant case is not
remanded. Docket No. 38. PRASA therefore argues that remand will serve the interests of
judicial economy and efficiency, whereas maintaining the case in this court would unfairly force
them to litigate in two separate venues. Docket No. 38.
1
PRASA also argues, in the alternative, that remand would also be appropriate under 28 U.S.C. § 1441(c), which
(prior to an amendment whose effective date post-dates this case) provided that when a removable federal claim is
joined to non-removable state law claims, the district court has the discretion to remove the entire action or to
remove only the federal claims and remand the state claims. Such provision, however, is not relevant here as neither
party disputes that the court properly had jurisdiction over the entire action at the time of removal.
2
Plaintiff has opposed the motion to remand, arguing that the court has original subject
matter jurisdiction over the action even in the FDIC’s absence. Docket No. 39. Therefore,
plaintiff argues, this court’s exercise of its jurisdiction is mandatory and the action cannot be
remanded. Docket No. 39. For the reasons to set forth below, the court grants PRASA’s motion
and remands this case to the Puerto Rico Court of First Instance, San Juan Part.
II.
ANALYSIS
The jurisdictional provision at the heart of this controversy provides, in its pertinent part,
that “ . . . all suits of a civil nature at common law or in equity to which the [FDIC], in any
capacity, is a party shall be deemed to arise under the laws of the United States.” 12 U.S.C.
§ 1819(b)(2)(A). It was enacted as part of the Financial Institutions Reform, Recovery, and
Enforcement Act (“FIRREA”), Pub. L. No. 101-73, 103 Stat. 183 (1989), “a comprehensive
regulatory scheme that Congress passed in response to the savings-and-loan crisis of the late
1980s and early 1990s.” Adair v. Lease Partners, Inc., 587 F.3d 238, 241 (5th Cir. 2009). One
of that Act’s main objectives was to “expand, enhance and clarify enforcement powers of the
financial institution regulatory agencies,” H.R. Rep. 101-54(I), at 311 (1989), reprinted in 1989
U.S.C.C.A.N. 86, 107. The statute at issue serves that purpose by providing a “federal forum
and a uniform body of federal law for [these agencies’] receivership activities.” New Rock Asset
Partners, L.P. v. Preferred Entity Advancements, Inc., 101 F.3d 1492, 1500 (3d Cir. 1996).
The statute does not indicate, however, what happens to the court’s jurisdiction when the
FDIC is no longer a party to the case, either when it has been substituted by a successor in
interest, or because it has been dismissed from the action altogether, and this ambiguity has
engendered a difference of opinion in the federal courts. Of the few circuit courts to address this
question, none have held that dismissing the FDIC strips the court of jurisdiction, mandating
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remand under 28 U.S.C. § 1447(c); rather, they have disagreed as to “the kind of subject matter
jurisdiction the district courts retain.” Destfino v. Reiswig, 630 F.3d 952, 958 (9th Cir. 2011)
(discussing split).2 Three circuits hold that the entire suit remains within the district court’s
original jurisdiction, while one holds that the district court retains only supplemental jurisdiction
over the state law claims. Id. Compare Adair v. Lease Partners, Inc., 587 F.3d 23, 242-43 (5th
Cir. 2009) (original jurisdiction); Casey v. F.D.I.C., 583 F. 3d 586, 591 (8th Cir. 2009) (same);
F.D.I.C. v. Four Star Holding Co., 179 F. 3d 97 (2d Cir. 1999) (same), with New Rock Asset
Partners, L.P. v. Preferred Entity Advancements, Inc., 101 F. 3d 1492, 1503-04 (3d Cir. 1996)
(supplemental jurisdiction). See also Mill Invs., Inc. v. Brooks Woolen Co., 797 F. Supp. 49
(D. Me. 1992) (holding that court retained only supplemental jurisdiction after FDIC assigned its
interest in promissory note at issue and was thus no longer a party to the suit).3 The difference
between these two approaches is, “of course, that if the claim is within the district court’s
original jurisdiction, then it has no authority to remand, while it has discretion to remand if the
claim falls within its supplemental jurisdiction.” Destfino, 630 F.3d at 958.
Both the rationale and the policy reasons behind the majority position are inapplicable to
the instant case. The courts in the majority rely on the rule that jurisdiction should be measured
at the time of filing (or at the time of removal), as well as policy concerns about protecting
assignees of receivership assets. See, e.g., Federal Sav. & Loan Ins. Corp. v. Griffin, 935 F.2d
691 (5th Cir. 1991) (basing holding on time of filing rule, and noting that “policy reasons for
2
At least two district courts have held that dismissal of the FDIC destroys federal question jurisdiction, mandating
dismissal under 28 U.S.C. § 1447(c). See Estate of Rains v. Dinges, 769 F. Supp. 353 (D. Kan. 1991); Firstsouth,
F.A. v. LaSalle Nat. Bank, No. 86 C 10247, 1991 WL 188649 (N.D. Ill. Sept. 11, 1991).
3
Although neither the First Circuit nor this court have addressed the question at hand, at least one decision from this
court has indicated a willingness to follow the minority position. See Arends v. Eurobank & Trust Co., 146 F.R.D.
42, 46-7 (D.P.R. 1993) (denying motion remand to state court having decided that the FDIC was a proper intervenor,
but indicating that if a court does decide to “dismiss the FDIC as an intervenor,” doing so would “thereby erod[e]
the foundation of federal jurisdiction.”) (dictum).
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insuring federal jurisdiction over cases involving the actions of failed thrifts continue when the
FDIC is voluntarily dismissed as a party and the owner of the failed thrift’s assets remain.”). In
the First Circuit, however, the time of filing rule is applied narrowly in federal question cases.
See ConnectU LLC v. Zuckerberg, 522 F.3d 82 (1st Cir. 2008).
Additionally, the policy
considerations that would serve the FIRREA’s purpose of expanding the FDIC’s regulatory
enforcement power are absent here. See New Rock, 101 F.3d at 1500-01 (noting that providing
a federal forum for financial regulatory agencies assist them to “successfully manage[ ] a thrift
and either restore[ ] it to solvency or transfer[ ] its assets to willing buyers.”). Therefore, as
explained below, the approach taken by the Third Circuit and the District of Maine is more
appropriate here, and the court thus has only supplemental jurisdiction over this action.
In holding that district courts retain original jurisdiction after the FDIC is dismissed, the
Fifth Circuit relied heavily on the age-old rule that the “jurisdiction of the Court depends on the
state of things at the time of the action brought,” Mollen v. Torrance, 22 U.S. 537, 539 (1824).
See Griffin, 935 F. 2d at 696 (“The power to remove is evaluated at the time of removal. The
dismissal of one of the parties by the time of appeal does not affect the propriety of removal.”);
see also Adair, 587 F.3d at 244 (“As Griffin is Fifth Circuit precedent, we are bound by its
holding.”). But see Adair, 587 F.3d at 246 (Jolly, J.) (concurring in the judgment, but opining
that jurisdiction was only supplemental because “the text ‘is a party’ [does not] mean that all
state-law claims in any case to which the FDIC ever was a party continue to arise under federal
law after dismissal of all federal interests,” and “[t]he statute does not, through some feat of
alchemy, make the case’s state-law claims federal-law claims”). The Eighth Circuit also seems
to have implicitly taken this position, reasoning that the language of the statute indicates that
once the FDIC is a party, the entire action is deemed to “arise under the laws of the United
5
States,” and is therefore within the original jurisdiction of the district court and holding, with no
further explanation, that this jurisdiction does not disappear when the FDIC is gone. Casey, 583
F.3d at 591 (“The subsequent dismissal of the claim against the FDIC did not defeat that
jurisdiction or withdraw the court’s jurisdiction over the state law claims filed against [the other
defendants.”). The First Circuit, however, has pointed out that the policy concerns behind the
time of filing rule “are largely absent in federal question cases.” ConnectU LLC v. Zuckerberg,
522 F.3d 82, 93 (1st Cir. 2008). Rather, the rule applies “most obviously in diversity cases,
where [it] originated, and where heightened concerns about forum-shopping and strategic
behavior offer special justifications for it.” Id. at 92 (internal citations omitted). Indeed, such
concerns are not present in this federal question case. There is no indication that the FDIC was
added to or dismissed from this case for the purpose of creating or destroying federal
jurisdiction.
Rather, it became a party due to Eurobank’s failure and its concomitant
appointment as receiver, and it was dismissed because of that institution’s lack of assets. See
Docket No. 1, Docket No. 35. All of these events were beyond the control of any of the parties.
As in many federal question cases, rigid application of the time of filing rule “is inapposite here.”
Id. Therefore, the time of filing rationale used by the Fifth and Eight Circuits is not compelling
here.
Similarly, the policy reasons that motivated the courts in the majority to exercise original
jurisdiction after the FDIC’s dismissal are not present in this case. In Griffin, the Fifth Circuit
reasoned that Congress intended for § 1819 provide the same protection to an assignee of a failed
financial institution’s assets that it gives to the FDIC, allowing it to remain in Federal court and
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have access to certain federal defenses.4 Griffin, 935 F.2d at 696. (“The policy reasons for
insuring federal jurisdiction continue over cases involving the actions of failed thrifts continue
when the FDIC is voluntarily dismissed as a party and the owner of the failed thrift’s assets
remain.”). Following Griffin, and relying more on policy reasons than the time of filing rule, the
Second Circuit also held that maintaining original jurisdiction after the FDIC has assigned a
failed financial institutions’ assets serves the agency’s interests in efficient management and
disposal of receivership assets. See Four Star, 178 F. 3d at 100-01 (“Adopting a rule which
would make federal jurisdiction contingent on who owned an interest in certain property at a
particular time could well have the effect of deterring normal business transactions during . . .
litigation, and could also deter transactions by the FDIC that presumably are in the public
interest.”) (internal citations omitted). Unlike in Griffin and Four Star Holdings, there is no
FDIC successor in interest that is a party to this case. Any financial institution that may have
taken over Eurobank’s assets has no place in this litigation due to the determination that
unsecured claims, such as plaintiff’s tort claims, cannot be satisfied by said assets. For that
reason, the FDIC, as its receiver, was dismissed from this action altogether. See Docket No. 35.
Neither of the remaining parties would benefit in the way FIRREA intended by continuing to
litigate in this federal forum. Accordingly, the policy reasons behind the majority position are
inapposite here.
More appropriate is the view taken by the Third Circuit and the District of Maine. In
Mill Investments, the FDIC was dismissed, but its successor in interest to the mortgage at issue
remained. 797 F. Supp. at 50-51. The court agreed with both parties’ view that it retained
4
Specifically, the court was referring to the doctrine established by D’Oench Duhme & Co. v. FDIC, 315 U.S. 447
(1942), that protects the FDIC and its assignees from unrecorded side agreements not reflected in the bank’s records,
allowing the FDIC to rely on the official bank records to set forth the rights and obligations of the bank and those to
whom it lends money.
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supplemental jurisdiction at this point.
Id. at 52 (“While application of the concept of
supplemental jurisdiction here is somewhat strained since there are not two discrete groups of
claims, the Court is satisfied that the intent of the statute is broad enough to encompass the type
of claims remaining here.”). However, the court found it appropriate to remand the case under
28 U.S.C. § 1367(c), which allows a district court, in its discretion, to remand when it retains
only supplemental jurisdiction over state law claims if, inter alia, it has “dismissed all claims
over which it had original jurisdiction.” Id. at 53-55. Noting that “FIRREA was enacted to deal
with a banking crisis and to smooth the modalities by which rehabilitation might be
accomplished,” the court held that “this policy is not advanced in any significant way by
retaining federal jurisdiction once the failed bank’s assets have been assigned to a private
company.” Id. at 53. The court also noted that there is no indication in FIRREA that “Congress
intended every case that formerly included the FDIC to be adjudicated in federal court.” Id. at
54. Accordingly, it exercised its discretion to remand the case.
New Rock also looked to the language and legislative purpose of the FIRREA in holding
that the statute does not provide continuing original jurisdiction once the FDIC is dismissed, but
that a court may, in its discretion, continue to exercise supplemental jurisdiction. 101 F.3d at
1502-05. First, it echoed Mill Investment’s policy concerns, as well as concerns about the
limited nature of federal jurisdiction on Congressional intent for the statute to confer original
jurisdiction over all cases where the FDIC “was a party,” and not just where it “is a party.” Id. at
1500 (“The role of federal jurisdiction in assisting the [FDIC] in its management role and in
disposing of thrift assets also indicates that once this has been accomplished, the reasons for
federal jurisdiction end.”
However, further examining FIRREA’s legislative purpose and
history, the court found that Congress did intend for federal courts to have the power to decide
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whether, in their discretion, they would exercise supplemental jurisdiction once the FDIC was
gone. Id. at 1508 (“This triggers a discretionary decision on whether jurisdiction over a state law
claim should be declined pursuant to § 1367(c).”). In so holding, the court reasoned that
a contrary conclusion would seriously limit the ability of Congress to provide a
federal forum for litigation initiated by federally-created entities. For example, it
would prevent Congress from deciding, after initially putting the case in federal
court, that judicial economy required that that court have the discretion to keep
the case. Congress would not even have the power to give continuing jurisdiction
over the case for reasons related to the interests of the jurisdiction-conferring
party. In this case, for example, the [Resolution Trust Corporation] may have
more difficulty disposing of its assets if the purchaser knows that any litigation
concerning those assets must be started anew in state court.
Id. at 1507. In that case, the Third Circuit decided that it was appropriate to exercise
supplemental jurisdiction because the district court had already invested considerable judicial
resources and had effectively resolved the case by granting summary judgment to New Rock, the
FDIC’s successor in interest.
The procedural posture of the instant case is quite different. The case is still in its initial
stages and neither remaining party has filed any dispositive motion on the merits. Discovery of
evidence is yet to begin. Docket No. 45. Moreover, because plaintiff can proceed against two of
the original defendants, DTPW and the Commonwealth, in state court only, judicial economy is
served by remanding the action so that all defendants may be sued in one action. Additionally,
as discussed already, the policy concerns motivating FIRREA’s grant of federal jurisdiction that
concerned courts on both sides of the circuit split are irrelevant here, as no successor in interest
to Eurobank’s assets remains in the case.
Following the Third Circuit’s holding gives a district court the flexibility to maintain or
decline to exercise jurisdiction depending on the facts of the individual case. This position best
serves the objectives of FIRREA, by allowing the court to exercise jurisdiction when the
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interests of the FDIC or its successor may be at stake, but to remand where, as here, such
interests are moot. It also promotes the most efficient use of judicial resources, because the court
may retain jurisdiction or remand depending on the procedural posture of the case and the
resources that have been expended by the court and the parties. Taking all of these factors into
consideration, the court finds no compelling reason to exercise supplemental jurisdiction over
this case.
III. CONCLUSION
Based on the foregoing, defendant PRASA’s motion to remand, Docket No. 38, is
GRANTED and this action is hereby REMANDED to the Puerto Rico Court of First Instance,
San Juan Part.
IT IS SO ORDERED.
In San Juan, Puerto Rico, this 29th day of June, 2012.
s/Marcos E. López
U.S. Magistrate Judge
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