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IN RE UNION NATL. BANK & TRUST CO.

March 31, 1969

In the Matter of UNION NATIONAL BANK AND TRUST COMPANY OF SOUDERTON, PENNSYLVANIA and The Citizens Bank, Formerly the Citizens and Southern Bank of Philadelphia, Adjudging Said Depositories as Contemnors


The opinion of the court was delivered by: CLARY

 This matter is presently before the Court on a petition by the Reliance Insurance Company (hereinafter "Reliance") to reinstate and change the form of its action filed with this Court. Previously, these same parties were before this Court on the motions of Union National Bank and Trust Company of Souderton, Pennsylvania, (hereinafter "Union National") and The Citizens Bank of Philadelphia (hereinafter "Citizens") to dismiss a rule to show cause why they should not be held in contempt of Court. These motions were granted, and the petition of Reliance was dismissed without prejudice to its right to attempt to recover its loss by other proceedings. In the Matter of Union National Bank and Trust Company of Souderton, Pennsylvania and Citizens Bank, formerly the Citizens and Southern Bank of Philadelphia, Adjudging said Depositories as Contemnors, 287 F. Supp. 431 (E.D.Pa.1968). The basis of the Court's holding in that case was that duties to the Bankruptcy Court of banks which were depositories of bankruptcy funds did not extend beyond accounts of receivers and trustees in bankruptcy. Hence, banks were under no extraordinary duty to protect, preserve, or segregate funds set up by auctioneers in the form of corporate checking accounts (as was the case here) because such were not bankruptcy accounts.

 The doctrine of federal pendent jurisdiction is a relatively recent development in the law involving a Federal Court's jurisdiction to entertain and decide a non-federal claim joined with a claim based on federal law where federal jurisdiction could be predicated solely on the presence of the federal claim.

 There are several factors which have been developed to determine whether or not pendent jurisdiction will attach in a given case. The first of these is whether or not plaintiff's federal claim is substantial in the sense that it could withstand a jurisdictional challenge in a case in which jurisdiction is based on the presence of a federal question without the joinder of a non-federal claim. Kaz Manufacturing Co., Inc. v. Chesebrough-Pond's, Inc., 211 F. Supp. 815 (S.D.N.Y.1962), aff'd. 317 F.2d 679 (2d Cir. 1963). Federal claims have satisfied the substantiality requirement for pendent jurisdiction purposes where it could not be dismissed on the face of the pleadings alone. See, Rumbaugh v. Winifrede Railroad Co., 331 F.2d 530 (4th Cir. 1964), cert. denied 379 U.S. 929, 85 S. Ct. 322, 13 L. Ed. 2d 341. So long as the federal claim is not clearly unsound or obviously without merit, it is sufficient to confer jurisdiction on the Federal Court even over the non-federal claim.

 Nor does a mere adverse decision on the federal claim establish that it is unsubstantial. Hurn v. Oursler, 289 U.S. 238, 53 S. Ct. 586, 77 L. Ed. 1148 (1933), Gibbs v. United Mine Workers of America, 343 F.2d 609 (6th Cir. 1965), aff'd. 383 U.S. 715, 86 S. Ct. 1130, 16 L. Ed. 2d 218 (1966). In the course of its opinion in the latter case, the Circuit Court said:

 
"Our present application of the doctrine of pendent jurisdiction is not novel. In Hurn v. Oursler, Mr. Justice Sutherland quoted from Siler v. Louisville & N.R.R.Co., 213 U.S. 175, 191, 29 S. Ct. 451, 455, 53 L. Ed. 753, 757 (1909), where the Court ruled that once federal question jurisdiction had been acquired the circuit court 'had the right to decide all the questions in the case, even though it decided the Federal questions adversely to the party raising them, or even if it omitted to decide them at all, but decided the case on local or state questions only.'" Gibbs v. United Mine Workers of America, 343 F.2d at 615.

 The decision of the Supreme Court in the case of Hurn v. Oursler, supra, produced one of the most important tests for determining the permissible bounds of pendent jurisdiction. This is known as the "singleness of cause of action test" and was the controlling law in the area from 1933 until 1966 when the Gibbs case was decided. In the course of its opinion in the Hurn case, the Court pointed out the distinction between "a case where two distinct grounds in support of a single cause of action are alleged, one only of which presents a federal question, and a case where two separate and distinct causes of action are alleged, one only of which is federal in character. In the former, * * * upon the nonfederal cause of action." Hurn v. Oursler, supra, 289 U.S. at 246, 53 S. Ct. at 589.

 Be that as it may, Courts have also recognized that there can be no hard and fast rule as to the extent of evidentiary identity necessary to bring a non-federal claim and federal claim within the single cause of action concept. The question must always be one of degree, e.g. American Securit Co. v. Shatterproof Glass Corp., 166 F. Supp. 813 (D.Del.1958). It has been held that the concept of singleness of cause of action is not violated by the fact that different types of relief are available under federal and state law. See, Price v. United Mine Workers, 336 F.2d 771, cert. denied 380 U.S. 913, 85 S. Ct. 899, 13 L. Ed. 2d 799, and in one case, a single fraudulent transaction was held to be one cause of action giving the Federal Court jurisdiction not only over the securities acquired in violation of federal law, but also over the other property not normally within federal jurisdiction. Errion v. Connell, 236 F.2d 447 (9th Cir. 1956).

 The most recent decision by the United States Supreme Court involving the doctrine of pendent jurisdiction is the case of United Mine Workers of America v. Gibbs, 383 U.S. 715, 86 S. Ct. 1130, 16 L. Ed. 2d 218 (1966). In this case the Court expressed its opinion on the tendency to restrict the application of pendent jurisdiction as set forth in the Hurn doctrine "to cases in which the state and federal claims are, as in Hurn, 'little more than the equivalent of different epithets to characterize the same group of circumstances.' 289 U.S., at 246 [53 S. Ct., at 590]." Id. at 724, 86 S. Ct. at 1138.

 The Court went on to say:

 
"This limited approach is unnecessarily grudging. Pendent jurisdiction, in the sense of judicial power, exists whenever there is a claim 'arising under (the) Constitution, the Laws of the United States, and Treaties made, or which shall be made, under their Authority * * *,' U.S.Const., Art. III, § 2, and the relationship between that claim and the state claim permits the conclusion that the entire action before the court comprises but one constitutional 'case'. The federal claim must have substance sufficient to confer subject matter jurisdiction on the court. * * * The state and federal claims must derive from a common nucleus of operative fact. But if, considered without regard to their federal or state character, a plaintiff's claims are such that he would ordinarily be expected to try them all in one judicial proceeding, then, assuming substantiality of the federal issues, there is power in federal courts to hear the whole." Id. at 725, 86 S. Ct. at 1138.

 After noting that the Federal Rules of Civil Procedure embody the tendency of their decisions to require plaintiff to try his whole case at one time and that to that extent emphasize the basis of pendent jurisdiction, the Court emphasizes the fact that exercise of pendent jurisdiction is a matter of absolute discretion with the Court. However, the Court added: "* * * There may, on the other hand, be situations in which the state claim is so closely tied to questions of federal policy that the argument for exercise ...


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