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CADLE CO. v. BANKERS FED. SAV. FSB

July 1, 1996

THE CADLE COMPANY, Plaintiff, against BANKERS FEDERAL SAVINGS FSB, Defendant.


The opinion of the court was delivered by: GLASSER

 GLASSER, United States District Judge:

 FACTS

 On December 22, 1986, defendant Bankers Federal Savings issued a mortgage to the Glenwood Management Company in the amount of $ 775,000.00, secured by the premises at 2610 Glenwood Road. Title to the property thereafter was conveyed to 2610 Glenwood Owners Corp., a cooperative apartment corporation, subject to Banker Federal's mortgage. On December 30, 1987, Bankers Federal sold a 90% interest in a pool of mortgages to Beacon Federal Savings Bank (the "Loan Participation Agreement"). Included in this pool was the mortgage secured by the property at 2610 Glenwood Road. Beacon subsequently became insolvent, and was acquired as a controlled institution by the Resolution Trust Company ("RTC").

 The mortgage secured by the property at 2610 Glenwood Road went into default on March 6, 1991. Bankers Federal commenced an action to foreclose the mortgage in the New York Supreme Court, Kings County, on August 29, 1991. A receiver was appointed by that court and a management company was retained to manage the building. That action is still pending.

 In 1994, plaintiff Cadle Co. acquired 12 end-loans for individual units at 2610 Glenwood Road. On August 29, 1995, plaintiff purchased from the RTC the interest in the mortgage to the property at 2610 Glenwood Road that RTC had acquired from Beacon Federal Savings Bank.

 Plaintiff's suit arises from its unhappiness with Bankers Federal's management of the mortgage foreclosure action. According to plaintiff, Bankers Federal's warehousing of past and future vacant apartments, and its refusal to make timely repairs on the apartments, constitutes a breach of the Loan Participation Agreement and a breach of its fiduciary duty to plaintiff under that Agreement. Cadle and Bankers Federal also dispute the nature and scope of the rights Cadle acquired when it purchased the RTC's interest in the mortgage to the property at Glenwood Road. Cadle alleges that Bankers Federal refuses to recognize its interest as a 90% owner of this mortgage. Cadle also asserts that because of Bankers Federal's breach of the Loan Participation Agreement, it has succeeded to Bankers Federal's right and title in the foreclosure action pending in the state court. Plaintiff asks the court for a declaratory judgment to that effect, and also asks the court to impose a constructive trust on the premises. *fn1"

 On February 9, 1996, the court heard defendant's motion to dismiss this case for reasons of improper venue pursuant to Fed. R. Civ. P. 12(b)(3). That motion was denied. On the same date, the Court heard plaintiff's motion for a preliminary injunction; that motion was denied as well. At oral argument on these motions, the court suggested to the parties that they consider withdrawing this action in light of the concurrent proceeding to foreclose the property pending in state court. The parties did not adopt the Court's suggestion; instead, defendant answered the complaint and asserted four counterclaims against plaintiff. *fn2"

 In response to the court's request, Bankers Federal has submitted to this court that it is prepared to acknowledge that Cadle is a party to the foreclosure proceedings and that Cadle may appear in the mortgage foreclosure action in the state court. Bankers Federal has consented to a discontinuance of this action or a stay of these proceedings based on the above. Cadle does not consent to a discontinuance or a stay of this action based on the representations made by Bankers Federal. Cadle asserts that its rights will not be adequately protected unless Bankers Federal acknowledges Cadle's right to intervene in the state court action in the capacity of plaintiff, or 90% owner of the Glenwood Road mortgage. In effect, Cadle asks that Bankers Federal concede the precise issue being litigated by the parties in this Court, namely Cadle's status vis a vis the first mortgage on the property, before it will consent to a stay or discontinuance of this action.

 DISCUSSION

 Federal courts have a "virtually unflagging obligation to exercise the jurisdiction conferred upon them by Congress." See Colorado River Water Conserv. Dist. v. United States, 424 U.S. 800, 813, 817-18, 47 L. Ed. 2d 483, 96 S. Ct. 1236 (1976). However, this duty is not absolute. See Quackenbush v. Allstate Insur. Co., 135 L. Ed. 2d 1, 116 S. Ct. 1712, 1996 U.S. LEXIS 3609, 1996 WL 287700 *11 (Jun. 3, 1996). The Supreme Court has held that the discretion historically enjoyed by courts of equity has invested the federal courts with the authority, in certain circumstances, to decline to assert their jurisdiction. Quackenbush at *16. Thus, federal courts may abstain from hearing an action in exceptional circumstances where denying a federal forum would "clearly serve" a countervailing interest, such as "proper constitutional adjudication," "regard for federal-state relations," or "wise judicial administration." Quackenbush 135 L. Ed. 2d 1, 116 S. Ct. 1712, 1996 U.S. LEXIS 3609, *26, at *11 (quoting Colorado River v. United States). Applying these principles, the Court has found exceptional circumstances to exist where the federal action in question is duplicative of a pending state proceeding. Quackenbush at *11.

 In Quackenbush, the Court emphasized that the abstention doctrine applies not only where federal jurisdiction is derived from the equitable power of the court, but extends "to all cases in which a federal court is asked to provide some form of discretionary relief." Quackenbush 135 L. Ed. 2d 1, 116 S. Ct. 1712, 1996 U.S. LEXIS 3609, *45, at *17. In particular, the Court has held that the unique discretionary authority granted to the district courts by virtue of the Declaratory Judgment Act, 28 U.S.C. § 2201, renders the application of the abstention doctrine to suits brought under that Act appropriate. See Wilton v. Seven Falls Co., 132 L. Ed. 2d 214, 115 S. Ct. 2137, 2141 (1995) ("Distinct features of the Declaratory Judgment Act. . . we believe, justify a standard vesting district courts with greater discretion in declaratory judgment actions than that permitted under the 'exceptional circumstances' test of Colorado River and Moses H. Cone [ Memorial Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 74 L. Ed. 2d 765, 103 S. Ct. 927 (1983)]"); Brillhart v. Excess Insur. Co., 316 U.S. 491, 495, 86 L. Ed. 1620, 62 S. Ct. 1173 (1942). Thus, in suits brought under the Declaratory Judgment Act, "considerations of practicality and wise judicial administration" take precedence over the otherwise prevailing doctrine that federal courts should adjudicate claims within their jurisdiction. Wilton at 2142-43

 Declaratory judgment actions which have as their underlying basis rights that are essentially governed by state law present particularly appropriate cases for application of the abstention doctrine. See Quackenbush at *12 (citing cases). Plaintiff's action asks this court for a declaratory judgment regarding the rights of the parties to a mortgage, rights which are, and historically have been, governed by state law. This action thus fits precisely within the ambit of those cases where the Supreme Court has held the ...


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