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CIRCLE IND v. CITY FEDERAL SAV. BANK

October 16, 1990

CIRCLE INDUSTRIES, DIVISION OF NASTASI-WHITE, INC., PLAINTIFF,
v.
CITY FEDERAL SAVINGS BANK, CRESTMONT SAVINGS AND LOAN ASSOCIATION, ELYSIAN FEDERAL BANK, COLONIAL SAVINGS BANK, NATIONAL WESTMINSTER BANK NJ, FIRST JERSEY SAVINGS & LOAN ASSOCIATION, STATEWIDE SAVINGS BANK, ALEXANDER HAMILTON SAVINGS & LOAN ASSOCIATION, INTERBORO SAVINGS & LOAN ASSOCIATION, NUTLEY SAVINGS & LOAN ASSOCIATION, LAKEVIEW SAVINGS & LOAN ASSOCIATION, PULAWSKI SAVINGS & LOAN ASSOCIATION, WEST ESSEX SAVINGS BANK, COLUMBIA SAVINGS & LOAN ASSOCIATION, AND FIRST NATIONWIDE FEDERAL SAVINGS BANK, DEFENDANTS.



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

MEMORANDUM AND ORDER

This action involves a real estate development project in Jersey City, New Jersey and its financing by certain savings and loan associations, some of which are now in receivership. Since the Court finds that it does not have subject matter jurisdiction of the claims asserted against an indispensable party to this action, the complaint is dismissed in its entirety.

I. THE MOTIONS

Certain defendants moved to dismiss the Complaint and the Amended Complaint*fn1 on various grounds: Resolution Trust Corporation ("RTC"), as Receiver of defendant City Federal Savings Bank ("City Federal"), on the grounds that the Court lacks subject matter jurisdiction (Fed.R.Civ.P. 12[b][1]) and that venue is improper (Fed.R.Civ.P. 12[b][3]); RTC, as Conservator of defendant Elysian Federal Savings Bank ("Elysian Federal") and as Receiver of defendant Colonial Savings Bank ("Colonial"), on the grounds that the Court lacks subject matter jurisdiction (Fed.R.Civ.P. 12[b][1]), the Court lacks personal jurisdiction (Fed.R.Civ.P. 12[b][2]), venue is improper (Fed.R.Civ.P. 12[b][3]), failure to state a claim upon which relief can be granted (Fed.R.Civ.P. 12[b][6]), lack of an indispensable party (Fed.R.Civ.P. 12[b][7]), or, in the alternative, that this action should be transferred to the District of New Jersey pursuant to 28 U.S.C. § 1404 and 1406; defendant Crestmont Savings and Loan Association on the grounds that the Court lacks subject matter jurisdiction (Fed.R.Civ.P. 12[b][1]), the Court lacks personal jurisdiction (Fed.R.Civ.P. 12[b][2]), venue is improper (Fed.R.Civ.P. 12[b][3]), or, in the alternative, that this action should be transferred to the District of New Jersey pursuant to 28 U.S.C. § 1404 and 1406; and defendants First Jersey Savings & Loan Association, Alexander Hamilton Savings & Loan Association, Nutley Savings & Loan Association, Lakeview Savings & Loan Association, Pulawski Savings & Loan Association, West Essex Savings Bank, and First Nationwide Federal Savings Bank on the grounds that the Court lacks subject matter jurisdiction (Fed.R.Civ.P. 12[b][1]), the Court lacks personal jurisdiction (Fed.R.Civ.P. 12[b][2]), venue is improper (Fed.R.Civ.P. 12[b][3]) or, in the alternative, that this action should be transferred to the District of New Jersey pursuant to 28 U.S.C. § 1404 and 1406. Defendants National Westminster Bank, NJ, Interboro Savings & Loan Association and Columbia Savings & Loan Association moved, pursuant to 28 U.S.C. § 1404, to transfer this action to the District of New Jersey.

Plaintiff opposed both the motions to dismiss and the motions to transfer.

In its original moving papers the RTC also moved to be substituted as the real party in interest as Conservator of Elysian Federal and as Receiver of Colonial. After the RTC filed its motions the Office of Thrift Supervision ("OTS") appointed the RTC as the Receiver for Elysian Federal effective June 29, 1990. (Affidavit of Paul G. Kostro, Esq., September 25, 1990, ¶ 2) The RTC subsequently amended its motion to be substituted as the real party in interest as Receiver for Elysian Federal. The Court having received no opposition, the RTC's motion to be substituted as the party in interest as Receiver for defendants Elysian Federal and Colonial is granted. (See 12 U.S.C. § 1441a[b][10][F] [RTC has the power "[t]o sue and be sued in its corporate capacity in any court of competent jurisdiction"])

Cognizant of the fact that it must decide the defendants' Rule 12(b)(1) motion first (see Rhulen Agency, Inc. v. Alabama Insurance Guaranty Ass'n, 896 F.2d 674, 678 [2d Cir. 1990] [quoting 5 C. Wright and A. Miller, Federal Practice and Procedure, § 1350, p. 548 [1969]] ["[w]here, as here, the defendant moves for dismissal under Rule 12(b)(1), Fed.R.Civ.P., as well as on other grounds, `the court should consider the Rule 12(b)(1) challenge first since if it must dismiss the Amended Complaint for lack of subject matter jurisdiction, the accompanying defenses and objections become moot and do not need to be determined'"]), the Court finds that (1) it does not have subject matter jurisdiction over the instant action as it relates to defendants City Federal, Colonial, and Elysian Federal; and that (2) City Federal is an indispensable party to this action, and as a result the Amended Complaint is dismissed as to all of the defendants pursuant to Fed.R.Civ.P. 12(b)(7). Since the Amended Complaint is dismissed in its entirety, the defendants' other motions are moot (see Rhulen Agency, Inc. v. Alabama Insurance Guaranty Ass'n, supra, 896 F.2d at p. 678).

II. BACKGROUND

This action concerns a real estate development project for the construction of 1,690 luxury apartment units in Jersey City, New Jersey known as "Port Liberte." The owner of the project is a New Jersey limited partnership named "Port Liberte Partners."

The project was financed by a consortium of New Jersey banks, the defendants in this action. Certain of these banks also retained an equity interest in the project. According to the Amended Complaint, the defendant banks provided approximately $158,000,000 in financing for the construction and land development of the project.

Defendant City Federal was the "lead lender" in the financing consortium and owned a twenty five percent equity interest in the project. As lead lender, City Federal was charged with the responsibility of overseeing the project and was authorized to carry out "all" negotiations with the general contractor and Port Liberte Partners.

Plaintiff, a New York corporation, was a subcontractor on the Port Liberte project. Plaintiff contracted with the general contractor, Sordoni Construction Co. ("Sordoni"), to provide gypsum drywall and interior carpentry for the agreed upon price of $3,923,000.

In early 1989, Port Liberte Partners defaulted on its loans and construction at the project ceased. According to the plaintiff, "[o]n or about July 9, 1989, arrangements were made with the Defendants acting by and through City Federal, as the lead lender, and Sordoni, as the Construction Manager, pursuant to which the Defendants agreed to provide sufficient funding to complete the so-called `Phase I' of construction at the Project." In addition, the plaintiff alleged as follows:

  "¶ 32. On July 11, 1989, Sordoni represented to the
  various subcontractors, including Plaintiff, at a
  meeting held for that purpose on the construction
  site, that Sordoni had received confirmation from
  Defendant City Federal and the Owner that
  sufficient financing had been secured to pay past
  due invoices and to complete the balance of Phase I
  of the project. . . .
  ¶ 33. On or about July 11, 1989, Defendant City
  Federal delivered a letter dated the same date to
  the Owner . . . pursuant to which Defendant City
  Federal, acting for itself and the other
  Defendants, represented to the Owner that the loan
  being assembled would be sufficient in amount to
  complete Phase I. Such letter was delivered by or
  on behalf of the Defendants to Sordoni and the
  Owner with the knowledge and understanding that
  such letter would be used by Sordoni, acting on
  behalf of City Federal and the other Defendants,
  and the Owner, to induce subcontractors, including
  Plaintiff, to return to work and complete Phase I
  of the project. . . .
  ¶ 36. On July 11, 1989, Defendant City Federal
  knew, or should have known, that it was financially
  troubled or insolvent and, in fact, unable to carry
  out its representations to the Plaintiff and the
  other subcontractors on the Project that it and the
  other Defendants were in fact unable to finance
  completion of the Project."

Circle Industries alleged that in reliance on the defendants' assurances it expended $1,500,000 in work, labor and services on the Port Liberte project, none of which has been paid to the plaintiff.

On December 8, 1989, the Director of the OTS declared City Federal insolvent and ordered it closed. The RTC was appointed Receiver of City Federal on December 8, 1989. On November 8, 1989 the RTC was appointed Receiver of Colonial. On February 16, 1989 the Federal Savings and Loan Insurance Corporation ("FSLIC") was appointed Conservator of Elysian Federal. The RTC succeeded the FSLIC as Conservator of Elysian Federal on August 9, 1989, and on June 29, 1990 the RTC was appointed Receiver of Elysian Federal.

Plaintiff instituted this action by filing the Complaint on or about February 23, 1990, after the RTC was appointed Receiver of City Federal and Colonial and after the RTC succeeded the FSLIC as Conservator of Elysian Federal. The Complaint and the Amended Complaint predicated jurisdiction on diversity of citizenship, 28 U.S.C. § 1332 — the plaintiff is a citizen of New York and the defendants are citizens of New Jersey. The Court also notes that 12 U.S.C. § 1441a(l)(1) provides that "any civil action, suit, or proceeding to which the [RTC] is a party shall be deemed to arise under the laws of the United States, and the United States district courts shall have original jurisdiction over such action, suit, or proceeding."

The Amended Complaint alleged four causes of action: (1) the plaintiff relied on the defendants' knowingly false representations that financing was available to complete "Phase I" of the project; (2) the defendants breached their covenant to deal in good faith with the plaintiff; (3) the defendants breached a fiduciary duty owed to the plaintiff when they failed to notify the plaintiff that they were unable to finance the completion of the project; and (4) the plaintiff relied on the defendants' knowingly false representations that financing was available to complete "Phase I" of the project by releasing certain claims against Sordoni and the defendants for "mobilization costs" in the amount of $150,000. The Amended Complaint sought $1,650,000 in compensatory damages and $15,000,000 in punitive damages.

III. MOTION TO DISMISS FOR LACK OF SUBJECT MATTER JURISDICTION

Defendants RTC (as Receiver of defendants City Federal, Colonial, and Elysian Federal), First Jersey Savings & Loan Association, Alexander Hamilton Savings & Loan Association, Nutley Savings & Loan Association, Lakeview Savings & Loan Association, Pulawski Savings & Loan Association, West Essex Savings Bank, First Nationwide Federal Savings Bank, and Crestmont Savings and Loan Association moved to dismiss the Amended Complaint for lack of subject matter jurisdiction on the ground that the plaintiff failed to exhaust the administrative procedures for asserting ...


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